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If you had bought £5,000 of Airtel Africa (LSE:AAF) shares in February 2020, my share would now be worth £8,095. Only four other stocks currently in the FTSE 100 they have performed better during the same period.
The company came to my attention recently after posting its latest quarterly results. However, I wonder if I left it too late to invest.
What is the history?
Airtel is the second largest telecommunications operator in Africa. Since its listing in June 2019, it has grown rapidly.
In fiscal 2020, the company made a pre-tax profit of $598 million. Two years later, this had risen to $1.22 billion. Not surprisingly, the company’s share price has followed a similar trajectory. It is now 60% higher than three years ago.
The company operates in three territories: Nigeria, East Africa and Francophone (predominantly French-speaking countries).
Looking back over two years, revenue has increased every quarter.
| Territory / $m | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 |
| Nigeria | 422 | 445 | 450 | 476 | 507 | 517 | 523 | 545 |
| east african | 358 | 394 | 428 | 459 | 436 | 455 | 487 | 502 |
| francophone | 260 | 276 | 285 | 288 | 282 | 288 | 299 | 304 |
| Set | 1,040 | 1,115 | 1,163 | 1,223 | 1,225 | 1,260 | 1,309 | 1,351 |
During the same period, the average revenue per user (ARPU) remained close to $3 per month. This means that revenue growth comes from an increase in subscribers, rather than extracting more money from existing customers. In fact, users increased from 125.8 million at the end of 2021 to 138.5 million a year later.
Although Airtel’s ARPU may not seem very high, it compares favorably with other rivals. For example, vodafone generates monthly revenue of $2.90 from each of its 184.5 million users in Africa.
Future growth is expected to come from the company’s mobile money offering. Currently, half of the adults in Africa do not have a bank account. Airtel Money currently makes payments worth $100 billion each year.
dividends
In addition to the impressive earnings and revenue growth, I like the fact that the directors are willing to reward the company’s shareholders.
The dividend for 2022 was $0.05 per share.
Although other stocks currently offer better returns, the board’s ambition is to increase the payout each year by “mid to high single digit percentage“.
Compared to 2022, the interim dividend for 2023 has increased by 9%. Since the final dividend is expected to increase by the same amount, the stock is currently yielding 3.7%.
Debt
Telecommunications companies often have high levels of indebtedness. The required infrastructure investment is not cheap and is often financed by debt.
With net debt (loans minus cash) 1.3 times greater than EBITDA (earnings before interest, taxes, depreciation and amortization), Airtel seems to have its debt under control.
| to March 31 | Net debt billions of dollars | underlying EBITDA billions of dollars | leverage ratio |
| 2020 | 3,247 | 1,515 | 2.1 |
| 2021 | 3,530 | 1,792 | 2.0 |
| 2022 | 2,941 | 2,311 | 1.3 |
That I have to do?
According to the United Nations, the population of Africa will double by 2050. The company currently operates in 14 of the 54 countries on the continent. I don’t see any reason why you can’t replicate your business model elsewhere. It should also benefit from projected population growth.
Additionally, Airtel shares are currently trading at a price-earnings (P/E) ratio of nine. This is low compared to some of the better known members of the FTSE 100.
Like most people, I only have a limited amount of cash available to invest. But I am going to add the stock to my shopping list for when my circumstances change.
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