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Airtel AfricaThe (LSE:AAF) share price has risen in recent sessions. It has risen as a broader recovery in FTSE 100 actions has intensified.
But the African telecommunications giant's recovery has been short-lived. A disappointing full-year trading statement brought it back to earth on Thursday (May 9).
At 110p, Airtel shares were last trading 5.2% lower today. I'm wondering if the market has overreacted to today's latest trading statement and if I should buy the dip.
There are dangers, as I will explain. But the potential rise in the share price is colossal. So what should I do next?
Strong underlying numbers
Airtel Africa is one of the largest telecommunications providers on the continent. It provides services to almost 153 million customers spread across 14 African countries.
In the 12 months to March, Airtel grew its revenue in constant currencies by 20.9% to $5 billion, it announced today. This, in turn, drove earnings before interest, taxes, depreciation and amortization (EBITDA) 21.3% higher to $2.4 billion.
Its total customer base increased 9% in the period, and the number of data users increased 17.8% year-on-year to 64.4 million. Meanwhile, the number of customers in its mobile money operations increased by an even better 20.7%, to 38 million.
Currency fall
These are all impressive numbers, I'm sure you'll agree.
So what is the reason for the sudden drop in Airtel Africa shares? Well, the company is still dealing with severe currency depreciation in some of its markets.
At real exchange rates, revenue fell 5.3% last year, while EBITDA sank 5.7%. On a pre-tax basis, Airtel suffered a loss of $63 million against a profit of $1 billion a year earlier.
Currency devaluations in Nigeria, Kenya and Malawi forced it to take a $549 million charge related to the foreign exchange market last year. And the company warned that it will experience more currency-related tensions this year.
The Footsie firm announced that this year's results “will continue to reflect currency headwinds experienced during FY24.” This is due to the timing of the Nigerian naira devaluations.
So what's next?
Unfortunately for Airtel, currency devaluations are expected to continue in Africa in the near term. But as someone who invests for the long term, I'm considering using today's price drop 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 double to 45% over the next five years.
It's encouraging that the company has shown it has what it takes to take advantage of this growing market, as today's results demonstrated. I don't think this is reflected in its low share price.
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 drop has pushed the dividend yield up to 5.7%.
I expect Airtel share price to recover strongly from current levels. And in the process I was able to enjoy significant capital gains, not to mention some healthy dividend income. It's a stock I will carefully consider buying today.
