Had I purchased £5,000 of Airtel Africa (LSE:AAF) shares in February 2020, my stake would now be worth £8,095. Only four other stocks currently in the FTSE 100 have performed better over the same period.
The company recently came to my attention after releasing its latest quarterly results. However, I wonder whether I’ve left it too late to invest.
What’s the story?
Airtel is the second largest telecoms operator in Africa. Since listing in June 2019, it’s grown rapidly.
In FY 2020, the company made a profit before tax of $598m. Two years later, this had increased to $1.22bn. Not surprisingly, the company’s share price has followed a similar trajectory. It’s now over 60% higher than it was three years ago.
The business operates in three territories: Nigeria, East Africa and Francophone (predominantly French-speaking countries).
Looking back over two years, revenue has increased each quarter.
| Territory / $m | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 |
| Nigeria | 422 | 445 | 450 | 476 | 507 | 517 | 523 | 545 |
| East Africa | 358 | 394 | 428 | 459 | 436 | 455 | 487 | 502 |
| Francophone | 260 | 276 | 285 | 288 | 282 | 288 | 299 | 304 |
| Combined | 1,040 | 1,115 | 1,163 | 1,223 | 1,225 | 1,260 | 1,309 | 1,351 |
During the same period, average revenue per user (ARPU) has remained close to $3 per month. This means the growth in revenue has come from an increase in subscribers, rather than from extracting more money from existing customers. Indeed, users increased from 125.8m at the end of 2021 to 138.5m a year later.
Although Airtel’s ARPU might not sound very high, it compares favourably to other rivals. For example, Vodafone generates monthly revenue of $2.90 from each of its 184.5m users in Africa.
Future growth is expected to come from the company’s mobile money offering. Presently, half of the adults in Africa don’t have a bank account. Airtel Money currently transacts $100bn of payments each year.
Dividends
As well as the impressive earnings and revenue growth, I like the fact that the directors are keen to reward the company’s shareholders.
The dividend for 2022 was $0.05 per share.
Although other stocks currently offer a better return, the board’s ambition is to grow the payout each year by a “mid-to-high single digit percentage“.
Compared to 2022, the interim dividend for 2023 has been increased by 9%. With the final dividend expected to rise by the same amount, the stock is presently yielding 3.7%.
Debt
Telecoms companies usually have high borrowings. The required infrastructure investment doesn’t come cheap, and is often funded by debt.
With net debt (borrowings less cash) 1.3 times higher than EBITDA (earnings before interest, taxation, depreciation and amortisation), Airtel appears to have its indebtedness under control.
| At 31 March | Net debt $bn | Underlying EBITDA $bn | Leverage ratio |
| 2020 | 3.247 | 1.515 | 2.1 |
| 2021 | 3.530 | 1.792 | 2.0 |
| 2022 | 2.941 | 2.311 | 1.3 |
What should I do?
According to the United Nations, Africa’s population will double by 2050. The company presently operates in 14 of the continent’s 54 countries. I see no reason why it couldn’t replicate its business model elsewhere. It should also gain from the anticipated population growth.
Also, Airtel’s stock is currently trading at a price-to-earnings (P/E) ratio of nine. This is low compared to some of the more well known members of the FTSE 100.
Like most people, I only have a limited amount of cash available to invest. But I’m going to add the stock to my shopping list for when my circumstances change.
