As previously noted, the Nigerian Communications Commission’s (NCC) approval of a 50% tariff increase marks a pivotal moment for the telecom sector, with the potential to reshape the financial outlook of key industry players.
While our earlier analysis focused on MTN Nigeria, this section shifts the spotlight to Airtel Africa, a company with dual listings and a strong presence across multiple African markets.
Given that Nigeria is Airtel’s largest revenue contributor, the implications of this tariff adjustment are critical to both its performance and the overall investor narrative.
This analysis explores how the new tariffs could impact Airtel Africa’s revenue growth, profitability, and appeal to investors while examining the risks and opportunities it faces in navigating Nigeria’s challenging economic landscape.
The impact on the bottom line:
The tariff hike, effective January 2025, could prove transformative for Airtel Africa, potentially offsetting inflationary pressures, surging fuel costs, and the impact of naira devaluation.
Prior to this adjustment, Airtel Nigeria had emphasized the necessity of higher tariffs to mitigate the over 300% rise in operational costs experienced in the past two years.
According to CEO Dinesh Balsingh, “To continue providing high-quality services and meet the growing demand for digital connectivity, it has become essential to realign our pricing structure with economic realities.”
Revenue growth
Airtel Africa’s first half of 2025 financial year performance demonstrates resilience amid macroeconomic challenges.
While reported revenue fell by 9.7% to $2.37 billion due to a $660 million currency devaluation impact, constant currency revenue grew by 19.9%.
Notably, Nigeria’s revenue surged 38.2% YoY in constant currency in Q2 2025. The tariff increase is expected to further accelerate this growth trajectory.
Considering that mobile services revenue in Nigeria grew by 18.4% in constant currency, the tariff adjustment could drive an additional 25–30% revenue growth, translating to $200–$300 million in incremental revenue annually.
EBITDA and margins
In the first half of 2025, EBITDA declined by 16.5% to $1.087 billion, with margins shrinking to 45.8% (down from 49.6%), primarily due to inflation and currency devaluation.
However, sequential improvements in Q2 2025 (46.4% margin) suggest that cost-efficiency measures are taking hold.
The tariff increase could drive margins higher, as additional revenue from higher tariffs may not be offset by proportional cost increases.
A margin expansion of 3–4 percentage points, returning to the historical 49–50% range could add $150–$200 million in EBITDA annually, bolstering profitability.
ARPU and customer metrics
- Data ARPU: Constant currency growth of 13.5% in data ARPU and a 30.9% increase in data usage suggest strong customer demand. The tariff increase could push ARPU growth above 20%, spurred by higher rates and sustained usage.
- Mobile Money ARPU: With a 10.9% growth in mobile money ARPU and a 30.1% rise in transaction volumes, the tariff hike could enhance ARPU by 15–20%, further embedding mobile money services in Nigeria’s economy.
Combined, these factors could yield annualized revenue gains of $100–$150 million from improved ARPU across data and mobile money services.
Impact on share price
The proposed tariff increase has the potential to break Airtel Africa’s current flat share price trend (N2,156) by introducing a strong catalyst for earnings growth.
With an expected $350–$450 million in additional revenue and 3–4 percentage points in margin expansion, Airtel’s profitability is likely to improve significantly.
Investors typically reward profitability-driven earnings growth, and the tariff increase could drive 10–15% near-term share price appreciation, supported by higher confidence in earnings momentum.
Airtel’s share price 14% YtD gain in 2024 and 15.41% rise in 2023 reflect prior growth expectations. However, the tariff hike introduces a fresh, unanticipated driver that could attract institutional and retail investors alike.
As Airtel Africa remains a heavyweight on the NGX, with a market capitalization of N8.106 trillion, significant earnings growth would likely boost positive sentiment, further lifting the stock’s appeal.
Valuation upside and risks
The tariff hike addresses key investor concerns, including:
- Margin Recovery: A return to 49–50% EBITDA margins signals operational efficiency, warranting a potential re-rating of the stock.
- Dividend Potential: Higher revenue and profitability could enable Airtel Africa to allocate more resources toward dividend payments, appealing to income-focused investors.
For the financial year ended 31 March 2024, the company paid a final dividend of 3.57 cents per share, reflecting its strong commitment to shareholder returns.
If the projected incremental revenue from Nigeria adds $200–$300 million annually, a portion of this could flow to net profits, increasing the likelihood of enhanced dividend payments.
If a 25–30% revenue increase translates to a proportional improvement in earnings, the company may choose to increase dividend payouts for the 2025 ending March 2025.
- These factors could unlock a 20–25% valuation upside over the medium term, particularly if Q4 2025 and subsequent earnings validate the anticipated revenue and margin growth.
However, challenges persist:
- Currency Risks: Persistent naira devaluation may temper dollar-reported earnings, moderating investor enthusiasm.
- Market Perception: Investors may adopt a cautious approach, awaiting evidence of improved earnings before revaluing the stock.
Overall, the 50% tariff hike in Nigeria represents a significant growth catalyst for Airtel Africa, with the potential to unlock substantial value for shareholders.
If the company successfully translates higher tariffs into earnings growth, it could justify a compelling Buy for growth-focused investors and a Hold for existing shareholders.
Analysts from Arthur Steven Asset Management and Futureview maintain a Hold rating on the stock as of January 27, 2025, reflecting a cautious but optimistic outlook amid evolving market dynamics.
