The Airtel Africa (LSE:AAF) share price has taken off and is showing no signs of slowing down. The telecom provider has quickly become the top-performing FTSE 100 share since its listing in late 2019. It has shot up 106% in one year and 186% in just two years of trading and ranks number one for returns over both periods. Airtel Africa has beat out some coveted FTSE 100 companies and I think it is just getting started.
Background and operations
Owned by Indian telecom giant Bharati Airtel, Airtel Africa has quickly risen to become one of the top mobile service providers in Africa, operating in 14 developing economies on the continent.
I am very bullish on companies with a focus on emerging economies in Asia, Africa, and South America. These regions have populated cities, a growing middle class, and rising disposable income, making them excellent marketplaces for developed market staples.
And given the low internet and mobile penetration in Africa, it is a relatively underexplored telecom market with enormous scope. The 14 sub-Saharan countries that Airtel Africa operates in have the highest projected population growth rates in the world. And Airtel is keen on establishing a thriving mobile network that could generate a loyal consumer base for decades.
Finances
In 2022, Airtel Africa registered 128.4m mobile phone customers (118.2m in 2021) along with 46.7m data customers and 26.2m Airtel Money users. The FTSE 100 company’s revenue grew by 23.3% in 2022 to US$4.71bn and operating profit grew 39% to $1.53bn. Basic earnings per share saw a huge jump of 86.5% and are currently at 16.8 cents.
Rising smartphone affordability in Africa and the growing youth population are big reasons behind this FTSE 100 share’s growth. Over the next five years, mobile connections are expected to grow at a compounded annual rate (CAGR) of 4.9%.
Africa is also a huge market for digital payments. In fact, in 2021, Africa accounted for 70% of the total value of mobile money transactions globally. And Airtel Money, the brand’s digital money transfer app, was its fastest-growing product in 2022, bringing in $553m, up 34.9% from 2020.
If Airtel Money grows at the current rate, it could become a major player in the digital payments sector in Africa which could potentially make the FTSE 100 firm billions in transaction fees.
Concerns and verdict
Currency devaluations in the region are a big concern. If valuations fluctuate a lot, it could hurt the company in the long run. Also, regulations and competition in the digital payment space are always a concern. Big players like Mastercard could choose to step up efforts in the thriving market, making it tougher for Airtel Money.
However, the African market is huge and Airtel Africa already has a firm foothold. It is ranked in the top two mobile service providers in 13 of the 14 countries it operates in. And its shares are currently trading at 172p at a price-to-earnings ratio of 12 times. I think this makes it an excellent bargain growth option because analysts expect similar growth figures next year as well. The FTSE 100 share has gone up over 25% in the past month but I am considering an investment at current levels as they look cheap for my growth portfolio.
