Airtel Africa has progress on velocity dial. Here is methods to play it

One of many key secular developments within the world economic system is the rise of Africa. Due to beneficial demographics, financial reforms and powerful commodity costs, the continent is ready to develop strongly over the following few years. 

Whereas African GDP fell final yr, the decline was solely 2%, a lot smaller than the autumn in developed international locations, and the area is anticipate to supply strong progress of round 3%-4% this yr. 

One fascinating strategy to make the most of Africa’s growth is thru the FTSE-250 firm Airtel Africa (LSE: AAF), which gives an unbeatable mixture of worth and progress.

Airtel Africa offers cellular providers to round 118 million prospects in 14 international locations, primarily in east, central and west Africa, together with Kenya, Uganda and Nigeria. At current most prospects use it to make easy, pay as you go voice calls. Nevertheless, round a 3rd of consumers additionally use Airtel to browse the web on their telephones, with the whole quantity of information consumed rising by 40%-50% a yr over the previous few years. 

Airtel is investing in rolling out quicker 4G-network providers to satisfy this rising demand and creating pricing buildings that encourage its shoppers to improve their plans. 

Present me the cash

Nevertheless, by far essentially the most fascinating a part of Airtel’s enterprise is its provision of cellular banking and money-transfer providers by its possession of a majority stake in Airtel Cash. As a result of the normal banking infrastructure in Africa is especially restricted, many individuals are compelled to make use of cellular providers to maneuver cash round. 

Along with cash transfers, each inside and between international locations, Airtel Cash gives financial savings accounts and even some loans. 

Whereas it has solely 20 million prospects up to now, it’s rising its buyer base at a charge of 30% a yr, which is why bigger corporations are desperate to spend money on it. Mastercard has purchased a small stake within the subsidiary, which is able to permit Airtel to speculate extra money in growth.

Airtel’s total income has grown by round 8% a yr between 2017 and 2021 and is predicted to maintain increasing at the same, or barely larger, charge within the subsequent few years. 

Robust working margins and a excessive return on capital expenditure (a key gauge of profitability) of 15% clarify why it made its first revenue in 2019 and managed to begin paying a dividend final yr, when different corporations have been suspending theirs. Though Airtel’s share value has tripled since March 2020 and is considerably above its pre-crisis peak, it’s nonetheless promoting for a really low 11 occasions 2022 earnings, with a dividend yield of 4%.

Airtel’s share value may be very near its 52-week excessive and above its 50-day and 200-day transferring averages, so it appears to have robust momentum behind it. I counsel that you just instantly go lengthy on the present value of 98p a share at £40 per 1p. With a stop-loss of 74p, this provides you a most complete draw back of £960.