The City clearly did not like the annual results published today (9 May) by telecoms operator Airtel Africa (LSE: AAF). As I write this on Thursday morning, the shares are down around 9%.
Yet to me, the results do not look all that bad. I am wondering: is there something I am missing?
Business challenges
To be clear, there were some weak points in the results. Revenues fell 5% and a $750m profit last time around swung to an $89m loss on this occasion.
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Clearly neither performance is good, particularly the loss. But what surprises me is the stock market’s reaction today, as the company has been warning for much of the past year about its performance.
The fundamental problem was a massive devaluation in the currency of Nigeria, the business’s key market. That is the sort of political risk that comes with investing in shares like Airtel Africa – and I think it remains a risk for the future.
But against the backdrop of a plummeting local currency, I think the fact that Airtel Africa’s revenues (reported in US dollars) fell only 5% is actually impressive. It shows that the company has largely been able to keep revenues up in dollar terms even amidst the local currency chaos seen in Nigeria.
It did that while managing to slightly reduce net debt.
Revisiting the investment case
The full year dividend grew by 9%, which I think is impressive. Airtel Africa shares now yield around 5.6%, well above the average of the company’s FTSE 100 peers.
Meanwhile, looking beyond the financial figures to the wider business numbers, I think the company continues to perform promisingly.
For example, last year saw the customer base reach 153m. That was year-on-year growth of 9%. The company continues to be well-positioned for ongoing growth in markets with large populations that are disproportionately young compared to mature western markets.
The subscriber base for the company’s mobile money offering grew by over a fifth, while transaction value (in constant currency) grew 38%.
Clearly, in reality currency was anything but constant for the company last year. But those figures show both that Airtel is getting more people to sign up for its mobile money offering and its user base overall is using the service more. I see this as a potential game changer in the long term for the company.
A risky bargain
The main reason for the loss last year was derivative and foreign exchange losses. Those are a risk of doing business in developing markets. I expect they will pop up from time to time in future, but do not see them as inevitably recurring on a regular basis.
Given the turbulent currency backdrop, I think Airtel Africa performed credibly last year.
The shares are still down 15% so far in 2024, though.
Over five years, however, they have moved up 60%. I see this as a strong business with a large customer base and set to benefit from ongoing growth opportunities.
I regard the current price as a bargain – recognising the ongoing risks involved – and plan to hang on to my Airtel Africa shares.
