Airtel Africa (LSE:AAF) shares represent one of the most exciting prospects on the FTSE 100. However, it’s not been straightforward for this provider of telecommunications and mobile money services. In fact, for a promising company, it’s not expensive. It trades at just 8.8 times earnings.
So let’s take a closer look at Airtel and explore what could be next for the firm.
Underperforming shares
Airtel Africa operates in 14 countries, and as the name tells us, they’re in Africa. It’s is owned by Indian telecommunications group Bharti Airtel.
Nations across the African continent are among the fastest growing worldwide. But stable and lucrative African investment opportunities can be hard to come by, especially on the FTSE 100. In several respects, Airtel Africa represents a fairly unique investment opportunity.
But if I had invested in Airtel Africa a year ago, I wouldn’t be happy with my returns. In fact, a £500 investment would be worth just £420 today. During that period, I would have earned around £20 in dividends.
Headwinds?
Airtel Africa reported revenue growth of 11.5% in its full-year results on Thursday. Revenue came in at $5.26bn in reported currency. However, the strength of the dollar weighed on these results, reflecting the only major headwind. When considering constant currency, Airtel’s revenue growth stood at 17.6%.
Growth was observed across all segments in the 12 months ended 31 March, with money services performing particularly well. Mobile money revenue also saw substantial growth of 29.6% in constant currency.
While profit after tax fell $5m to $750m, most indicators were positive. Airtel Africa’s total customer base expanded 9% to 140m customers. The company also saw a 16.9% increase in data customers to 54.6m, and a 20.4% increase in mobile money customers to 31.5m.
Moreover, revenue per user grew by 7.4% in constant currency. This was largely drive by increased usage across voice, data, and mobile money.
A risk worth taking
The geographies in which Airtel Africa operates gives the firm a higher risk profile than from a European-focused peer. That’s just the nature of operating in developing countries. Political risk coupled with $3.6bn of net debt at the end of 2022 does present a barrier for some investors. This is reflected in its relatively low valuation — 8.8 times earnings.
But there are certainly several positives. Firstly, with a global rate hike coming to an end, we should see a depreciation of the dollar, providing a boost to reported currency revenue.
In the near term, the macroeconomic outlook is “volatile“, the company said, but the medium-term growth picture for the countries of operation is broadly positive, a factor which could further aid adoption of data and money services.
It’s also worth noting that the dividend yield will stand around 4% — above the index average — after a 9% increase in the payout to 5.45c per share.
For me, Airtel looks like a risk worth taking. And with the share price hovering around 110p, at the time of writing, I think it looks particularly attractive. I’m looking to add this one to my portfolio.
