The FTSE 100 is home to huge global companies totalling trillions of pounds in market capitalisation, yet some shares still change hands for less than a pound coin.
A share price below £1 is sometimes a sign of a discount or a chance to buy in at a low ebb.
As I write, three stocks trade in pennies – Lloyds at 49p, Vodafone at 71p and Airtel Africa (LSE: AAF) at 96p. And I think the latter might be the best of the three.
Runway for growth
Airtel Africa only joined the FTSE 100 a couple of years ago, so let’s start with the basics.
What does it do? Well, as its name suggests it’s a telecoms company focused on the African continent. The Vodafone of the region, if you like.
The firm is well established in 14 countries already and is top or second in market share in 13 of them.
The exciting thing here is that it might have a long runway for growth ahead of it.
In Sub-Saharan Africa, only 40% of people own a smartphone, but this is a figure that’s changing rapidly. One estimate expects 88% of people to own one by 2030.
Airtel’s two biggest segments, selling voice plans and mobile data, could thrive in the coming years. But I think the biggest opportunity is its third segment — ‘mobile money’.
Mobile money enables smartphone users to access banking facilities like sending money internationally, taking out loans or paying for things with digital wallets.
The potential is huge in Sub-Saharan Africa where 57% of people still don’t have a bank account because of a lack of stable banking services.
So far, so good. That 96p share price is looking tempting. But how is the company performing?
Well, on a constant currency basis, excellently.
Brutally honest
Airtel recently reported that, for the first nine months, revenue went up 20%, EBITDA up 22%, margins increased and customers numbers rose 9% too.
The return on capital employed (ROCE) grew as well and at 24.3% almost makes a mockery of Vodafone’s ROCE of less than 4%.
Hang on a second though, constant currency? Are there exchange rate issues perchance?
Well, in the firm’s own words: “Reported currency trends over the nine month period have been impacted by significant currency devaluation”.
And, to be brutally honest, that’s understating things.
Profit before tax for the nine months came in at $55m following $801m the year before – down a full 93% year on year. Those impressive revenue and EBITDA numbers fall to a loss too.
The problem was currency devaluation in its biggest market, Nigeria. The Nigerian nairi is down 39% since January and down 71% from a year ago.
The share price has crashed 26% since the January release of those earnings too.
Am I buying?
This exposure to unstable countries might be the sticking point here. Do I want to invest in regions with such a lack of certainty?
For a little more context, Nigerian is currently grappling with 22.75% inflation and 29% interest rates.
That’s just one country Airtel Africa operates in, but it’s enough to put me off investing in the shares.
