The N1,905.40 per share Airtel Africa Plc closed on Monday July 18 represents year-to-date (YtD) return of 99.5percent. The Telco’s share price trades at a 52-week high, the stock’s trading information shows.
The provider of telecommunications and mobile money services said it will on Thursday July 28 announce its results for the three months ended June 30, 2022. Thereafter, its management will host a conference call for analysts and investors at 12:00pm UK time (BST) on Thursday July 28, 2022.
Analysts say much-improved FX liquidity could take the steam out of the rally
In their May 11 note to investors, the Ope Ani’s team of analysts at Lagos-based Coronation Research asked investors to sell the shares of Airtel on their perceived downside risk amid their target price (TP) of N1,051.07 for the stock.
“Airtel Africa operational performance in fourth-quarter (Q4) 2022 was strong and in line with our expectations. We expect that continued network and infrastructure expansion will see the Group deliver substantial revenue and earnings growth in full year 2023. The investment case for the company remains the same – the company is well-positioned to capture increasing mobile and internet adoption across Africa’s largely underpenetrated market – and we think this has already been priced-in,” the coronation analysts said in their May 11 note to investors.
According to them, on the Nigerian Exchange, Airtel Africa stock continues to trade “at valuations that we find unjustifiably rich.”
“Moreover, it has become more expensive since our last note. On our estimates, the stock is trading on Forward P/E and EV/EBITDA multiples of 18.9x and 6.7x, a rich premium to emerging market peer multiples of 13.7x and 5.6x. Furthermore, in London, it trades at a Forward P/E of 9.8x. Current valuations would place the stock at a level above Safaricom, Africa’s best mobile money growth story, which trades at a PE of 18.0x and generates an ROE of 48.9percent.
“We think the primary reasons for the mispricing are majorly around Nigeria’s FX liquidity conundrum and the stock’s low liquidity compared with its market capitalisation. Although the FX situation is slightly better than in 2020, FX liquidity is still very thin for exiting equity investors compared with before the pandemic. In our view, a much-improved FX liquidity could take the steam out of the rally. Accordingly, we maintain our SELL recommendation on the stock,” Coronation analysts had noted.
SmartCash Payment Service Bank commenced operations
Airtel Africa on May 19 said its subsidiary SmartCash Payment Service Bank Limited (SmartCash PSB) commenced operations in Nigeria. It said its services initially became available at selected retail touchpoints, and operations will be expanded gradually across the country over the next few months.
“I am very excited to announce our commencement of operations for financial services in Nigeria through SmartCash PSB. This is the beginning of our journey to revolutionise the financial services landscape in the country. To help further digitise the economy, and most importantly to help bank the unbanked by reaching the millions of Nigerians who do not currently have access to financial services by delivering current and savings accounts, payment and remittance services, debit and prepayment cards and more sophisticated services,” Segun Ogunsanya, chief executive officer, Airtel Africa Plc had noted.
Read also: Nigeria equities market decreases further by 0.44%
Settlement of cash tender offer in respect of outstanding senior notes
Airtel Africa had on July 8 confirmed the settlement of the previously announced cash tender offer to redeem up to $450million of the $1 billion of 5.35percent Guaranteed Senior Notes due 2024 (‘Notes’) by its subsidiary Bharti Airtel International (Netherlands) B.V.
An aggregate principal amount of $450million of Notes accepted for purchase for a total of $462.6million. All Notes accepted for purchase have been cancelled ahead of their maturity in May 2024.
The original cap on the redemption of $300million, as mentioned in the release of June 22, was increased on July 6 as BAIN, in its sole discretion, decided to achieve a larger debt reduction through the use of cash resources.
This early redemption was made out of the Group’s cash reserves and is in line with its strategy of reduction of external foreign currency debt at Group level.
DRC spectrum acquisition
Airtel Africa had on June 6 announced the purchase of 58 MHz of additional spectrum spread across 900, 1800, 2100 and 2600 MHz bands, for a gross consideration of $42million. The licence for paired spectrum in the 2100 band comes up for renewal in September 2032.
All the other licences continue until July 2036. This additional spectrum will support Airtel Africa’s 4G expansion in the market for both mobile data and fixed wireless home broadband capability, providing significant capacity to accommodate its continued strong data growth in the country.
DRC is the largest country by area in Airtel Africa’s portfolio and its second largest market by population. This investment reflects the telco’s continued confidence in the tremendous opportunity inherent in the DRC, supporting the local communities and economies through furthering digital inclusion and connectivity.
Revisiting full year to March 31 scorecard
On May 11, Airtel Africa released its results for the year ended March 31, 2022. Its full-year financial highlights show reported revenue grew by 20.6percent for the year, to $4,714million, and 17.8percent for fourth-quarter (Q4).
Constant currency underlying revenue grew 23.3percent for the year and 19.1percent in Q4. Constant currency underlying revenue growth was strong in all regions: Nigeria up 27.7percent, East Africa up 22.7percent and Francophone Africa up 17.2percent; and across all key services, with revenue in Voice up 15.4percent, Data up 34.6percent and Mobile Money up 34.9percent.
Airtel Africa is a leading provider of telecommunications and mobile money services, with a presence in 14 countries in Africa, primarily in East Africa and Central and West Africa.
Airtel Africa offers an integrated suite of telecommunications solutions to its subscribers, including mobile voice and data services as well as mobile money services, both nationally and internationally.
Underlying EBITDA of $2,311million, grew by 29percent in reported currency. Underlying EBITDA margin of 49percent, increased by 294 basis points. Operating profit grew by 37.2percent to $1,535million in reported currency. Profit after tax grew by 82percent to $755million.
Basic earnings per share (EPS) of 16.8 cents was an increase of 86.5percent. EPS before exceptional items was 16.0 cents (FY’21: 8.2 cents). Operating free cash flow of $1,655million, up 40.5percent, with net cash generated from operating activities up 20.7percent to $2,011million.
Over the last twelve months the business has repaid nearly $1.4billion of debt at HoldCo as a result of strong cash upstreaming across its OpCos and proceeds from minority investments in mobile money and tower sales. Leverage ratio improved to 1.3x from 2.0x in the prior year, with $1billion of debt now held at HoldCo (FY’21: $2.4billion). Customer base of 128.4 million, up 8.7percent, with increased penetration across mobile data (customer base up 15.2percent) and mobile money services (customer base up 20.7percent).
NIN/SIM regulations in Nigeria impacted customer growth in H1, but then returned to strong growth, adding 4 million customers in Nigeria during H2’22. Board had recommended a final dividend of 3 cents per share, making total FY’22 dividends 5 cents pershare (FY’21: 4 cents).
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