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Airtel Africa price range shows bullish outlook – but beware regulatory risks

By David Whitehouse
Posted on Tuesday, 18 June 2019 08:59

Youths listen to news on their mobile phones as Nigerians await the results of the Presidential election, in Yola, Adamawa State, Nigeria February 24, 2019. REUTERS/Nyancho NwaNri

Airtel Africa’s strong operating performance means that the company’s IPOs in London and Nigeria are likely to succeed – raising new political and regulatory risks for the company.

The price range of between 80p and 100p per share announced on Monday for Airtel Africa’s IPO in London implies a valuation for the company of between £3b and £3.6b.

  • The company also confirmed that it plans to list in Nigeria.

That valuation is based on the company’s fundamental strengths. 

Revenue growth at Airtel Africa is being driven by mobile data and Airtel Money, ICICI Direct Research said on June 6.

Raghunath Mandava, CEO of Airtel Africa, said on May 28 that Airtel Money has “significant potential” for further growth. Christoph Stork, telecoms analyst at ICT Solutions, wrote in January that Airtel Africa’s results have been “remarkable”, with voice revenue, minutes per subscriber and overall network minutes all growing.

  • Data revenues have been expanding even faster, Stork wrote.

According to Motilal Oswal analysts on May 31, Bharti Airtel, the owner of Airtel Africa, is growing faster than the market in Nigeria, thanks to higher investments in long-term evolution (LTE). More than 60% of the sites are LTE, which means that increased network capacity and speed are offered to mobile device users. Nigeria is Airtel Africa’s biggest market.

In economic terms, Christopher Marks, head of emerging markets EMEA at Mitsubishi UFJ Financial Group, sees a promising backdrop in Nigeria. “The economy has continued to stabilize in Nigeria,” he says. “It’s not a bad time in Nigerian terms” for the IPO. As a sector play, he says, Airtel Africa is “not the worst thing that you can do.”

‘Noisy’ space

The telecoms space in Nigeria “continues to be a noisy affair,” Marks says, adding that Nigerian governance continues to present “idiosyncracies” for international corporates.

That’s something of an understatement.

According to Kenneth Erikume head of reporting at PwC Nigeria, it’s “virtually impossible that a company will be able to manage its tax affairs without any dispute with the tax authorities.”

In its World Investment Report 2019, the United Nations Conference on Trade and Development (UNCTAD)  says that foreign directment investment in Nigeria slumped 43% to $2bn, due to government disputes with MTN, UBS and HSBC. Ghana in 2018 overtook Nigeria as west Africa’s largest recipient of FDI.

The regulatory risks for Airtel Africa, which operates in 14 countries, are not confined to Nigeria.

  • This month, Airtel Africa owner Bharti Airtel cancelled $407 million of debt owed to it by Airtel Tanzania.
  • The company agreed to pay Tanzania $26m to settle a dispute over the ownership of its Tanzania unit, in addition to a special dividend of an unspecified amount.
  • Bharti Airtel had already agreed to raise the Tanzanian government’s stake in the company from 40% to 49%.

Bottom Line: Airtel Africa has a strong fundamental case which has drawn support from institutional investors. The risk is that governments and regulators will seek to muscle in on their growth story.

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