Airtel Africa‘s (LSE:AAF) share price has swept higher in recent sessions. It’s risen as a broader recovery in FTSE 100 shares has intensified.
But the African telecoms giant’ rebound has proved short-lived. A disappointing full-year trading statement has seen it crash back to earth on Thursday (9 May).
At 110p, Airtel shares were last dealing 5.2% lower today. I’m wondering whether the market has overreacted to today’s latest trading statement, and whether I should buy on the dip.
There are dangers, as I’ll explain. But the potential share price upside is colossal. So what should I do next?
Strong underlying numbers
Airtel Africa is one of the biggest telecoms providers on the continent. It supplies services to almost 153m customers stretched across 14 African countries.
In the 12 months to March, Airtel grew revenues at constant currencies by 20.9% to $5bn, it announced today. This in turn pushed earnings before interest, taxes, depreciation, and amortisation (EBITDA) 21.3% higher, to $2.4bn.
Its total customer base jumped 9% in the period, with the number of data users rising 17.8% year on year to 64.4m. Meanwhile, customer numbers at its mobile money operations increased by an even better 20.7%, to 38m.
Currency crash
These are all impressive numbers, I’m sure you’ll agree.
So, why the sudden plummet in Airtel Africa shares? Well, the business is still grappling with severe currency depreciation across some of its markets.
At actual exchange rates, revenues dropped 5.3% last year, while EBITDA sank 5.7%. On a pre-tax basis, Airtel swung to a loss of $63m from a $1bn profit a year earlier.
Currency devaluations in Nigeria, Kenya, and Malawi forced it to eat a forex-related $549m charge last year. And the company warned that it will experience further currency-related stress this year.
The Footsie firm announced that the current year’s results “will continue to reflect the currency headwinds experienced during FY’24.” This is due to the timing of the devaluations in Nigeria’s naira.
So what next?
Unfortunately for Airtel, currency devaluations are tipped to continue in Africa in the short term. But as someone who invests for the long haul, I’m considering using today’s price slump as an opportunity to invest in the company.
The potential rewards of owning Airtel Africa shares could be colossal as telecoms demand takes off. Industry body GSMA has predicted that 4G adoption in sub-Saharan Africa will more than double to 45% over the next five years.
Encouragingly, the company has proven it has what it takes to tap this growing market, as today’s results showed. I don’t think this is reflected in the cheapness of its shares.
The company now trades on a forward price-to-earnings (P/E) ratio of 9.2 times. As an added sweetener, today’s share price decline has pumped the dividend yield up to 5.7%.
I expect Airtel’s share price to recover strongly from current levels. And in the process I could enjoy some significant capital gains, not to mention some healthy dividend income. It’s a stock I’ll carefully consider buying today.
