I think the FTSE 100 could hit its next big milestone of 8,000 points in 2023. Despite the energy crisis ravaging the UK right now, the Footsie seems to be hitting higher levels after every mini crash. Just in September, the UK’s premium index has rallied nearly 5% and I think this is a strong sign that the march to 8,000 is already under way. I’m looking at two FTSE 100 shares for my growth portfolio and I think I’ve found potential winners. 

A rare tech gem in the FTSE 100

One company that has caught my eye recently is Sage Group (LSE:SGE). The software firm is an established global player with a robust business model and strong cash flow. It’s the third-largest business software provider in the world, used by over 6m people/businesses worldwide.

The company offers its products on a subscription basis and has an impressive 99% renewal rate since 2019. Sage saw its annual recurring revenue grow by 7.7% in the financial year (FY) 2021. 

Using this cash, the company has been developing its cloud storage business, which is projected to be a $40bn industry by 2030. This venture brought in £997m last year, which contributed to the 5% annual revenue growth. 

However, Sage Group primarily works with small and medium-sized businesses in the US, Europe and Asia. While its business management software sees strong renewal rates, a recession could change this. Rising bills will force businesses to cut extra costs, including software services.

But I’m still bullish on the firm given its cash-rich business model and strong global presence. Despite economic concerns, Sage’s financials make it a market leader. The tech firm is also reinvesting and expanding which is why it’s on my watchlist of top FTSE 100 shares. 

Tested product, new market

Historically, businesses with an established business model and brand strategy have found it easier to expand into global markets. McDonald’s Corp’s highly successful model is the best example.

Burgers were largely unknown in Asian countries like India and Korea. But McDonald’s is now a major force in these countries. Thanks to targeted products and marketing, the fast-food chain has established thriving businesses in very diverse culinary markets. Airtel Africa (LSE:AAF) is doing the same thing with mobile connections. 

Using the business model perfected by its parent company Bharti Airtel in India, the telecoms firm has become a premium service in Africa. The company quickly identified one key product that could put it above the competition. 

By deploying Airtel Money, a mobile-to-mobile fund transfer service, Airtel Africa tapped into one of the world’s largest digital payment networks. This attractive, low-cost model has caused Airtel Africa shares to jump over 300% since the pandemic.

The biggest threat it faces is 5G expansion and growing competition. Africa is fast becoming a target for global business superpowers. Given the earnings potential for telecom firms in the region, Airtel Africa could be undercut by giants like Verizon when bidding for 5G bands in the future. 

However, the company has been careful in securing some key territories that put it in a strong position going forward. I’m watching this FTSE 100 share very closely and could be tempted to make an investment in the coming months. 

The post Race to 8,000: 2 FTSE 100 shares I’d buy before the next bull run appeared first on The Twelfth Magpie.

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Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended Airtel Africa Plc and Sage Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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.

The post Up 106% in a year! The fastest-growing FTSE 100 share is still a bargain appeared first on The Twelfth Magpie.

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Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended Airtel Africa Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I’ve always used market slumps as an opportunity to buy high-quality shares at discounted prices. And this time is no different. I’ve bought these two FTSE 100 shares that I believe to be well-positioned for the future with strong fundamentals.

African telecommunications

Airtel Africa (LSE:AAF) is a telecommunications and mobile money company with 118.2m customers in 14 African countries. The company aims to connect a continent that struggles with large distances between communities and poor infrastructure.

The FTSE 100 company saw a 14.2% increase in revenue in 2021 with the three key services of voice, data, and mobile money all growing. It was noted in its recent annual report that, “Mobile and digital penetration is low and populations are young and growing fast“. This shows there remains considerable growth opportunity within the sector. The company is the market leader in the majority of the countries it operates in, which puts it in a great place to reap the rewards from this growth.

Some challenges lay ahead for this FTSE 100 company. Due to the scale of Africa, there are challenges in connecting remaining isolated areas to mobile and data networks. The costs of adding an extra person to the network will continue to rise, which will put a strain on profits.

The shares currently trade with a price-to-earnings ratio of only 9.9, which is better than the majority of FTSE 100 shares. I’m excited by the growth opportunities that lie ahead for the company, which is why I added this company to my portfolio.

A FTSE 100 engineer

Spirax-Sarco (LSE:SPX) is a British engineering giant with a global presence in several niche industries. The company manufactures steam systems, peristaltic pumps, and electric heating units. This isn’t going to get anyone’s heart racing. However, I don’t mind that. I think that ‘boring’ shares are often overlooked. The shares are down 33% in 2022.

Spirax-Sarco coped well with the pandemic with revenue only falling 4% from £1.24bn in 2019 to £1.19bn in 2020. Revenue reached £1.34bn in 2021 with the company reporting a record operating profit of £340.3m. Alongside this, 50% of revenue comes from equipment maintenance. As industrial customers can’t just decide not to maintain their equipment, this has given Spirax-Sarco a resilient income stream.

However, there are a few upcoming challenges. Lockdowns in China have left a Shanghai factory running at lower capacity, which could leave customers with longer order waits. Alongside this, rising inflation is causing its own challenges. Demand for new machinery may drop as companies try to cut down on costs.

The shares are currently trading with a price-to-earnings ratio of 34 and a dividend yield of 1.27%. I wouldn’t consider this incredible value compared to some other FTSE 100 alternatives.

Overall, I think the positives still outweigh the negatives. The company has shown incredible resilience over the last few years and I see this set to continue. That is why I added Spirax-Sarco shares to my portfolio.

The post I’ve bought these 2 FTSE 100 shares! Here’s why appeared first on The Twelfth Magpie.

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Finlay Blair owns shares in Airtel Africa Plc and Spirax-Sarco. The Motley Fool UK has recommended Airtel Africa Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

What does Airtel Africa do?

Airtel Africa is a telecommunications company that operates in 14 countries in Africa. It also operates in mobile money, a sector which is extremely unpenetrated within the continent.

The firm has managed to deliver very strong growth over the past few years. Indeed, in the FY19 results, the company recorded pre-tax profits of $348m, yet in the first half alone of FY22, it has already managed to deliver pre-tax profits of $567m. For the full year, pre-tax profits are expected to reach at least $817m, a 135% increase from two years ago. Pre-tax profits in FY23 are expected to reach near to $1bn. As such, it’s clear that the company’s growth is very strong.

But I don’t believe that these growth prospects are fully reflected in the valuation. In fact, using this year’s results, Airtel Africa has a price-to-earnings ratio of around 12. This is an extremely modest P/E ratio for a company that’s growing at such a quick rate and is lower than the average among FTSE 250 stocks. Further, Vodafone, which also operates in the telecommunications sector, has a current P/E of 24. This is despite the fact that it’s seeing extremely limited growth. Accordingly, if Airtel Africa was to reach a similar valuation to Vodafone, it would have to double in value. Therefore, this seems a reasonable target, especially as Airtel Africa has far higher growth prospects than Vodafone.

The risks

There are several risks that could disrupt this growth however and prevent the shares from doubling in value, instead seeing their value decrease. For example, although Africa is a high-growth, underdeveloped market, which should help propel growth, there is also instability in the area. This includes the current fragile state of democracy in Nigeria, where the firm generates around 40% of sales.

There is also rising competition on the continent, a factor that could slow growth.  This includes companies such as Orange and Telecel Centrafrique.

What am I doing with this FTSE 250 stock?

Airtel Africa already makes up one of the largest positions in my portfolio, and I may buy even more. As already demonstrated, it trades on a low P/E ratio, and from a valuation perspective, to me, the shares seem capable of doubling in value.

It also has a subsidiary, Airtel Money, which has recently prompted an investment from Mastercard. This implies that it has extremely high potential, another factor that points to rising profits in the future. Banking is a still-developing market in Africa, and the sector is expected to expand rapidly. This offers further upside potential.  

The post A FTSE 250 stock I think could double my money appeared first on The Twelfth Magpie.

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• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Stuart Blair owns shares in Airtel Africa Plc. The Motley Fool UK has recommended Airtel Africa Plc, Mastercard, and Vodafone. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Trading update

The half-year trading update was strong across the board. Indeed, in comparison to the same period last year, revenues were 25% higher at $2.272bn. Further, the group saw revenue growth in each of its different segments, with mobile money showing particularly robust growth of 42%. This demonstrates that the company is still growing quickly.

And unlike many other growth stocks, Airtel Africa is also recording strong profits, and it said profit before tax totalled $567m. As already stated, this is a 101% increase on last year’s results. As profits rose quicker than revenues, it shows that the company is improving its operating efficiency. This is a good sign for the future, and hopefully, profits can continue to grow.

The group’s current profitability also means that the stock trades on a cheap valuation. In fact, using these results, Airtel Africa has a price-to-earnings ratio of around 9. This is lower than a large majority of other FTSE 250 stocks, and ratios under 10 often indicate that growth is either slow or negative. As this doesn’t seem the case with Airtel Africa, I feel that it’s undervalued.

Other factors

Nevertheless, this low P/E ratio may reflect some of the risks associated with the group. For example, while Africa is seen as a high-growth area, it’s also seen as very unpredictable. In fact, Sub-Saharan Africa has recently experienced a third wave of coronavirus, caused due to vaccination levels remaining very low. Many African currencies, such as the Nigerian naira and the Zambian kwacha, have also seen devaluations recently. Both these factors may have a negative impact on Airtel Africa, something which makes it riskier than some other FTSE 250 stocks.

But I’m confident that it can cope with these problems. For instance, the company has managed to consistently grow its customer base, which most recently reached 122.7m. The balance sheet has also been steadily improving, and net-debt-to-underlying EBITDA is now only 1.5x. I feel that this is sustainable.

What am I doing with this FTSE 250 stock?

Airtel Africa makes up the largest part of my portfolio, and I’m still tempted to buy more. Its growth is excellent, and it’s accompanied with a dividend of around 4%. Its subsidiary, Airtel Money, is also delivering excellent growth, and this has prompted an investment from Mastercard. As such, while there are no doubt risks associated with this stock, there are too many positives to ignore in my view. Therefore, I believe that Airtel Africa is a ‘no-brainer’ buy for me so I may buy more.

The post A ‘no-brainer’ FTSE 250 stock I’d buy today appeared first on The Twelfth Magpie.

More reading

• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Stuart Blair owns shares in Airtel Africa. The Motley Fool UK owns shares of and has recommended Mastercard. The Motley Fool UK has recommended Airtel Africa Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.