Airtel Africa Valuation Jumps Amid Move to Repurchase Shares
Airtel Africa, a subsidiary of Bharti Airtel, sees valuation jumps after the telecom giant announced decision to buy back its shares from Nigerian minorities’ shareholders last week. The telecom company’s share repurchase was launched after Dangote Cement made similar move.
Share repurchase from the Nigerian Exchange could turn to a festival as companies seek reward for strong earnings performance and less volatile stocks, some analysts told MarketForces Africa while answering what could prompt Airtel Africa latest market move.
According to a statement submitted to the Nigerian Exchange, Airtel Africa seeks to buy out 8.27% minority stake in its Nigerian subsidiary -Airtel Networks Limited with an open offer to all shareholders at a price of N55.81 per share.
Dubbed as the third largest player in the telecommunication segment of the Nigerian economy, Airtel share price movement often shakes the very fabrics of the domestic bourse. The telecom company worth N3.856 trillion on Friday at a unit price of N760, gained more than 6% from N715 per share at the beginning of the week.
Broadstreet analysts polled by MarketForces Africa said the board could be considering the volatility in the Nigerian bourse. After staying negative for months, the stock market return moved into a positive number as the all-share index crossed 40,000 points.
It had underperformed the benchmark since early in the year amidst selling rallies. This was driven in part by an uptick in fixed income yields in the first half of 2021. With the announcement, Airtel Africa shareholders record a hefty increase which could potentially add up for total returns on their portfolio.
In its equity note, Meristem Securities said in the event that all minority shareholders tender their shares at the offer price, this transaction will cost the parent company up to US$148.10 million. The amount needed as consideration for the share repurchase represents 23.89% of the Group’s total cash as of the first quarter of 2022.
Meristem said while mobile voice remains the Group’s primary source of revenue (50.54%), there has been an increasing focus on data, driven by the recent expansion of its 4G networks and other non-voice offerings.
In the first quarter of its financial year 2022 earnings scorecard, Airtel recorded $562 million revenue from voice business. This was followed by $356 million revenue generated from data services while mobile money contributed $124 million and $98 additional revenue was recorded from other sources.
Analysts said there has also been an increasing popularity of the Group’s mobile money services- Airtel Money- among customers outside Nigeria, contributing 12.18% to total revenue.
Operation of the Airtel money business is yet to commence in Nigeria, as the group awaits the approval of its Payment Service Bank (PSB) license. Airtel Networks Limited (Airtel Nigeria) is a subsidiary of Airtel Africa and contributes c.40.02% to the Group’s revenue, Meristem said.
Analysts said in the review that Airtel Nigeria accounts for 33.86% of the Group’s customer base, making it the Group’s biggest market. The parent company currently holds a 91.73% equity stake in Airtel Nigeria, while minority stakeholders hold the remaining 8.27%.
Airtel Nigeria is the third-largest telecommunications service provider in the country, with a subscriber base of 50.86 million as of August 2021, which represents 26.91% of the total market share, Meristem said in a review.
In the first quarter of 2022 result
Airtel Africa’s revenue grew by 30.7% to $1.112 billion, driven by constant currency growth of 33.1% partially offset by currency devaluations, mainly in the Nigerian naira (6%) and Zambian kwacha (24.2%), in turn partially offset by appreciation in the Central African franc (6.6%) and Ugandan shilling (5.3%).
The company said revenue growth for the quarter partially benefitted from a weakened performance in the first quarter of the prior year during the peak period of Covid-19 related restrictions across the region.
Even after adjusting for this, revenue growth rates were ahead of the fourth quarter of the financial year 2021 trends for the Group, and across all reporting regions and service segments, it added.
Analysts also noted that 8.34% increase in its customer base to 120.8 million subscribers and average revenue per user growth by 19.23% as contributing factors to the improvement seen in its topline performance.
The Group’s revenue sees an average annual growth rate of 10.33% in the past five years, supported by solid subscriber base growth, Meristem Securities analysts stated.
According to analysts note, all Airtel Africa business segments have contributed to the overall expansion in top-line with a two-year average growth rate of – Voice: 4.31%, Data: 30.29%, and Mobile money: 30.93%.
The firm’s operating profit margin has also improved consistently to 31.65% in Q1:2022 from a five-year average of 20.76%, indicating an impressive profit position.
Profit after tax was $142 million in the first quarter of the company’s financial year 2022, a 148.7% increase on the $57 million of the prior period.
This increase was largely due to higher operating profits along with stable net finance costs, which more than offset the increase in tax charges due to increased profits, the company hinted in a report submitted to the stock market regulators.
Airtel Africa recorded 3.3 cents as basic earnings per share in its first quarter of 2022 results, up from 1.1 cents in the prior period. This increase was mainly due to higher operating profits which more than offset the increased tax charges from higher profits, the company hinted, adding that its net finance cost and minority interest were broadly stable.
Meristem Securities hinted that despite the looking good result, Airtel Africa’s return on equity of 14.31% remains below its cost of equity of 19.57% and trails behind the median return on equity of its African peers at 19.39%.
Analysts noted the 23.47% year on year decline in the firm’s cash balance in Q1:2022 to US$620 million to settle the Group’s debt. Consequently, the Group’s debt to equity stood at 1.2x, comparing favourably with its African peers at 2.33x and MTNN at 6.34x
The group leverage position improved year on year, to 1.8x at 30 June 2021 from 2.2x on 30 June 2020, despite investing $247 million of intangible capital expenditure to renew licences in two of its largest markets – Nigeria and Uganda. Airtel Africa also hinted about its acquisition of additional spectrum across a few of its markets.
“We note the potential impact of the minority buy-out on the firm’s cash balance- a decline to USD471.90 million from USD620 million in Q1:2022. We, however, do not consider this a threat to the firm’s performance and operations”, Meristem said.
It noted that Airtel Africa is expected to receive cash flows from the sale of a minority stake in its Airtel Money business and tower assets later in the year.
“We also note that the buyout of the minority stake in Airtel Nigeria will translate to an undiluted interest of the group in the subsidiary if all minority shareholders tender their holdings”.
Meristem said this will result in a higher share of profit to Airtel Africa in subsequent periods, given the buy-out of non-controlling interest, referenced that profit attributed to non-controlling interest in Q1:2022 was US$17 million.
In the near term, analysts see the possibility of increased buying interest on the counter based on investors’ optimism coupled with the anticipation of improved financial performance as earnings season draws nearer. #Airtel Africa Valuation Jumps Amid Move to Repurchase Shares