The current outlook in the UK economy is bleak as it faces its biggest challenge in years. Due to this, some FTSE 100 stocks have pulled back, making them potential bargain buys for my portfolio. One stock I am seriously considering buying is Airtel Africa (LSE:AAF). Here’s why.
Emerging market telecoms
As a quick reminder, Airtel is a telecommunications, mobile money services, and banking business based in Africa. It currently provides its services to 14 countries on the continent and is looking to capitalise on the increasing infrastructure spending in this emerging market. It was promoted to the FTSE 100 just a few months ago.
So what’s happening with Airtel shares currently? Well, as I write, they’re trading for 137p. At this time last year, the stock was trading for 84p, which is an impressive 63% rise over a 12-month period.
FTSE 100 stocks have risks
Stocks that focus on emerging markets are prone to greater volatility. This is because when the economic outlook worsens, like currently, investment in these markets can be cut drastically and more quickly, in favour of more developed markets. This could see Airtel’s operations, performance, and investor returns negatively affected.
Next, significant capital expenditure is required when businesses solely operate in an emerging market. Due to this, seeing a return on investment can take time. Currently, Airtel’s debt level is something I will keep a keen eye on to ensure it is manageable. Furthermore, I will keep reviewing results to ensure it is chipping away at this debt too. Increasing and unmanageable debt can affect investor sentiment and returns.
The bull case and what I’m doing now
So to the positives then. I note that Airtel’s growth to date has been underpinned by impressive performance growth in recent years. I do understand that past performance is not a guarantee of the future, however. Looking back, I can see it has grown revenue and profit for the past four years consecutively. This growth even continued during the pandemic period.
Next, sustained performance growth can lead to dividend payments which would boost my passive income stream. I can see that Airtel’s dividend yield currently stands at just over 3%. This is in line with the FTSE 100 average yield of 3%-4%. I am aware that dividends can be cancelled at the discretion of the business at any time, however.
Looking at the Airtel share price, it looks really good value for money right now on a price-to-earnings ratio of just nine. The general consensus is that a ratio below 15 in the UK’s premier index can represent good value for money.
Finally, Airtel has a history of acquisitions which supplement its organic growth. These acquisitions are a sign of a growth strategy and ambition, and will only further the firm’s footprint and offering.
I believe Airtel is currently a FTSE 100 bargain and this is a direct result of the stock market pullback in recent months. I would buy Airtel shares for my holdings and keep them for the long term.
