Airtel Africa mobile money prospects may extend FTSE 100 entry rally

By David Whitehouse
Posted on Thursday, 10 February 2022 11:53

Tony Karumba/AFP

The rally in Airtel Africa’s share price driven by the stock’s entry into the FTSE 100 index may have further to run as mobile money growth prospects are still not captured, analysts say.

The stock joined the FTSE 100 on January 31, meaning passive tracking funds have to buy and hold the shares. The stock has risen about 80% in London over the last 12 months. But there remains underlying value and fundamental reasons to buy, says Ayobami Omole, an analyst at Tellimer in Lagos.

Voice revenue is improving and mobile money can drive further growth, which the market hasn’t yet fully valued, Omole says. “The main potential is mobile money.” Prospects for a separate listing of the company’s mobile money business in coming years may help drive the shares, she adds.

The market has also not yet acknowledged the full potential of the Payment Service Bank (PSB) licence in Nigeria, she adds. Airtel Africa in November received approval in principle for the license, which will allow it to provide financial services such as cash deposits, payments and remittances.

Omole points to the company’s asset sale programme, which has been raising cash and reducing leverage.

  • Over the last year, the  debt to equity ratio has reduced to about 75% from over 100% as telecom tower assets have been unloaded.
  • The company in January closed the sale of its towers in Tanzania for $176m, with part of the proceeds to be used to cut debt.
  • Airtel Africa, which is majority owned by India’s Bharti Airtel, operates in countries which mostly have low Internet penetration and mobile phone use. That means it is well placed to benefit from growth in Internet access.
  • The company’s 14 African markets include low penetration plays such as Chad, Gabon, Niger, Democratic Republic of the Congo, Republic of the Congo and Madagascar.

 Price Target Raised

Chapel Hill Denham investment bank in Lagos is also positive, lifting its 12-month target price by 23% to 1,507 naira on February 8. While the dual listing has played its part, “fundamentals are supportive of the rally,” writes director of research and strategy Tajudeen Ibrahim.

The sum of the parts valuation is 45% accounted for by Nigeria, 34% by east Africa and 21% by francophone Africa, Ibrahim writes. On the basis of price to EBITDA (earnings before interest, taxes, depreciation and amortisation), Chapel Hill Denham’s new price target implies a 2023 multiple of 6.4 times for Airtel, cheaper than Safaricom on 10.9x and Vodacom on 7.3x, Ibrahim writes.

  • Net debt to EBITDA is predicted to keep falling to 0.9x at the end March, from 1.4x at the end of December 2021 and 2.1x at the end of December 2020.
  • Ibrahim lifts his full-year EBITDA margin prediction to 48.0% from 47.4%. The company’s financial year runs from end March to end March.

The company published nine-month results on February 4. CEO Segun Ogunsanya said then that he sees “huge growth potential across voice, data and mobile money”.

  • Chapel Hill Denham forecasts that voice revenue will grow by 8.6% in the full-year 2022, data by 42% and mobile money by 40%.
  • Full-year revenue growth is now forecast at 22.7% from a previous estimate of 17.1%.
  • Chapel Hill Denham sees Nigeria as the major driver, with concerns on rules around the National Identification Number programme now receding.

Bottom Line

Analysts see Airtel Africa as a blue-chip play on growing African connectivity and mobile phone use.

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