As a shareholder in Airtel Africa (LSE: AAF), I considered the political risks of its African focus before investing. Still, those risks – especially devaluation of the Nigerian currency – have hurt the Airtel Africa share price badly.
The shares have lost a quarter of their value over the past month alone and now trade for pennies apiece.
They are still 38% up since listing in 2019, however, and I continue to like the underlying business prospects of the 5%-yielding FTSE 100 share.
So, should I put more money into them now?
Frontier market challenges
If I had spare cash to invest at the moment, I would be happy to buy more Airtel Africa shares for my portfolio.
But before explaining what I think could go right, what might go wrong?
Operating in frontier markets almost always carries elevated political risks.
As a populous, fast-growing economy, Nigeria might not match everyone’s definition of a frontier market. One look at the currency situation, though, and it is clear that the country continues to pose elevated political risk.
Consider this line from the telecom operator’s most recent quarterly update, released this month: “During the period, the Nigerian naira devalued from 461 per US dollar to 952, resulting in a 51.5% appreciation in the US dollar since 31 March 2023.”
Such wild currency swings make managing a business with stability and continuity very difficult indeed. With Nigeria responsible for $1.2bn of its revenues in the first nine months of the current financial year, such swings are highly material to Airtel Africa’s performance.
I see an ongoing risk from such currency swings as part of the company’s wider political risk exposure in both Nigeria and east Africa.
Ongoing opportunities
Clearly the City is aware of that and has marked the Airtel Africa share price down accordingly.
But even against such a dramatic operating backdrop, the company’s most recent update demonstrated commercial resilience. Revenue in the first nine months of its current financial year slipped only 1.4% when converted to US dollars, despite the dramatic slump in the value relative to the Nigerian naira in which it earns much of its revenues.
The customer base grew 9.1% compared to the end of its prior financial year.
Excluding currency effects (that are clearly very real in this case), average revenue per user grew 10%. If the Nigerian currency stabilises, that sort of business growth could translate into meaningful revenue growth again. Net debt fell by 9% compared to a year before.
Meanwhile, mobile money continues to be a huge growth driver. In the most recent quarter, transaction value was $116bn.
Only a small percentage of that comes the company’s way in the form of commissions, but mobile money is a growth juggernaut I expect to keep delivering strong numbers.
The Airtel Africa share price looks cheap to me for a company with its potential. The risks cannot be ignored, but I think they are reflected in the price.
