Monday, July 08, 2019 / 12:10PM / By NSE / Header Image Credit: Digest Africa
The Nigerian Stock Exchange (NSE) has announced that
Airtel Africa, Africa’s second largest telecoms operator, will be listing its
shares on the main board of the Exchange tomorrow, 09, July 2019 . The
company’s listing will give it a market capitalisation of c.US$3.8bn, making it
the third most capitalised stock on the Exchange after Dangote Cement and MTN
Following its IPO of US$750m, the company’s shares
made a lacklustre opening on its initial trading day on the London Stock
Exchange, as its shares fell by as much as 16% to 0.67 pence.
Although the shares have since recovered some of its losses, we believe that
the read-across from the LSE may result in the shares trading below the
minimum threshold share price of N363 per share on its debut on the
The offer price implies a 2019
(end-Mar) EV/EBITDA of 5.8x. This compares with MTN Nigeria’s 2018
(end-Dec) multiple of 6.4x ( or 4.7x 2019E).
Key highlights gleaned from the company’s IPO
memorandum are below.
- Second largest mobile operator in Africa by
number of active subscribers with a well-diversified footprint spanning 14
Africa countries and serving an aggregate of 98.9 million subscribers and
14.2 million mobile money customers.
- Nigeria represents the group’s
largest single country subscriber base, accounting for 37.6% of the firm’s
total subscribers as at FY 2019 (end-Mar), with 43.4% of subscribers in
East Africa (Uganda, Rwanda, Kenya, Tanzania, Malawi and Zambia) and the
remaining 19.1% in the Rest of Africa (DR Congo, Rep. of Congo, Gabon,
Chad and Niger Republic) segment.
- Airtel operates in three main
business lines, mobile voice, mobile data and Airtel Money.
- Mobile voice - The mobile voice
business line comprises pre- and post-paid wireless voice services,
international roaming, fixed-line telephone services and interconnect
revenue paid to the group by other telecommunications providers. The
mobile voice business line is the largest component of Airtel’s revenue,
representing 66.4% and 62.2% in 2018 and 2019, respectively.
- Mobile data - mobile data
business line comprises data communications services, including 2G, 3G and
increasingly, 4G data services, and other Value-Added-Services for mobile
subscribers. The mobile data business line accounted for 18.9% and 22.2%
of Airtel’s revenue in 2018 and 2019, respectively. On an aggregated
basis, the mobile business lines before inter-product elimination and
including infrastructure tower sharing income accounted for 94.8% (95.4%)
of the Airtel’s consolidated revenue and 92.7% (95.2%) of the group’s
underlying EBITDA in 2019 (2018).
- Airtel Money - Mobile money
services, offered under the Airtel Money brand, are an increasingly
important part of the group’s service offerings. Airtel Money services are
available across the group’s footprint in which Airtel serves 14.2 million
customers. In Nigeria, Airtel offers Airtel Money services in partnership
with a local bank and has applied for a mobile banking licence. The Airtel
Money business line before inter-product elimination accounted for 7.6% of
the group’s consolidated revenue and 7.3% of the group’s underlying EBITDA
- Relative to the mid-teens
revenue growth delivered by MTNN Nigeria (MTNN) over the 2017-18 period,
Airtel’s average revenue growth over the 2018-19 (end-Mar) period was more
modest at c.3%. However, its 2019 (end-Mar) revenues were up by 5.7%
- Although the company’s 2019
(end-Mar) EBITDA margin of 42.5% compares favourably with the 41.8%
delivered by MTN Nigeria (MTNN) in 2018 (end-Dec), its bottom line
earnings were weighed down by elevated interest expenses due to its debt
burden (net debt/ EBITDA of 3.1x end-Mar compared with. 0.28x for MTNN in
- As such, although Airtel’s FY
2019 PBT margin of 12.1% improved markedly from negative territory in FY
2019 (end-Mar), it pales in comparison with MTN Nigeria’s 2018 PBT margin
- The company’s capital structure
shows high levels of leverage with a net-debt/EBITDA (including finance
lease) of 3.1x as at 2019 (end-Mar) vs. 0.28x for MTN Nigeria. As such,
the net issue proceeds of US$750m are to be used to deleverage its balance
sheet to achieve a target ratio of c.2.5x (based on Underlying EBITDA),
and free-up free cash flow to provide flexibility to pursue growth
- Airtel Africa targets a minimum
dividend distribution of 80% of free cash flow as long as a ratio of net
debt to Underlying EBITDA between 2 to 2.5 times is maintained, subject to
all regulatory, statutory and monetary restrictions.
- In 2019 (end-Mar) Airtel
delivered a post-tax ROE of c.10.5%.
- The growth in mobile telephony
is supported by the lack of legacy fixed broadband infrastructure in
Sub-Saharan Africa and increasing affordability of smartphones in emerging
markets, particularly in Africa.
- In 2017, fixed broadband
household penetration stood at 7.4% compared with North America (87.5%),
Europe (83.9%), Asia Pacific (70.4%) and Latin America (42.9%). As such,
data growth will be driven by the increasing use of mobile networks, such
as Airtel’s as the primary source of internet access for millions of
people across the continent.
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