Airtel Africa To List On The NSE On Tuesday July 09, 2019

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 Nigeria.

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 NSE.  

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 in 2019.

• 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% to US$3.1bn.

• 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 2018)

• 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 of 21.3%.

• 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 opportunities.

• 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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