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    MIDAS SHARE TIPS: Ring up a bargain with Airtel

    MIDAS SHARE TIPS: Ring up a bargain as Africa moves fast in the mobile phone revolution with a little help from Airtel

    It seems hard to believe, but 23 years ago, just one in six UK households had a mobile phone. Today, 95 per cent have one. 

    In Africa, less than half the population has a mobile and most of those are old-fashioned, slow and simple, rather than the all-singing, all-dancing smartphones that consumers in the developed world have become addicted to. 

    For Airtel Africa, this offers a massive opportunity. The company is a leading provider of phone, data and mobile money services on the continent, operating in 14 countries, including Nigeria, Kenya, Uganda and the Seychelles. 

    Work, rest and play: Airtel is well placed to benefit from the boom in mobile banking and app use in Africa

    Sales and profits are growing fast, the dividend policy is generous and the outlook is promising. Yet Airtel shares have had a rough ride since listing in London in June 2019.

    Initially priced at 80p a share, the stock has roller-coastered over the past year. It fell in the months after listing, rose to the issue price over the winter, slumped to below 29p in March, as Covid-19 fears erupted, and closed at 57p last week.

    The current price seems unfair, reflecting concerns about the economic impact of the coronavirus rather than Airtel’s present growth rates and future potential. 

    The company has 112 million customers and offers three services – straightforward voice calls, mobile data and mobile money. 

    Voice calls generate most of the group’s turnover and customer numbers are increasing by 12 per cent a year, but usage varies so sales growth from this division is about 5 per cent annually. 

    The data and mobile money divisions are expanding much faster. Mobile data accounts for almost a third of Airtel’s turnover, growing at more than 35 per cent annually. 

    Data usage tends to expand exponentially as network connections improve and Airtel is one of the top operators of 4G services in Africa. With 4G, customers can stream music and videos, check apps and shop online with ease, as well as performing more basic functions such as sending and receiving emails or photos. 

    As connectivity improves, customer numbers are likely to increase and usage is expected to climb materially, with customers tuning into online entertainment and e-commerce. 

    Chief executive Raghunath Mandava is particularly excited about Airtel’s mobile money arm because Africa is extremely short of bank services. Branches are few and far between across the continent and most people have to travel miles to their nearest one.

    Airtel has developed a chain of thousands of small kiosks, operated by franchisees, which allow customers to load money on to their phone and to withdraw cash. The service is used extensively – to buy food from a local shop, to send money to relatives or to pay utility bills. Transactions can be for £1 or even less but last year alone, 

    Airtel was behind transactions valued at more than £25billion and the business is growing fast. Airtel has not been immune from the Covid-19 effect. Much of Africa went into lockdown and people spent less as incomes fell. But most countries are open again, albeit operating with restrictions. 

    Governments and citizens alike recognise that they cannot afford a coronavirus outbreak, so masks are widely worn on the street, social distancing is respected and consumers’ temperatures are routinely taken in shops and malls. 

    Given this, Airtel’s growth prospects seem sound. Mandava said last month that turnover rose 7 per cent in the three months to 30 June, while profits were 13 per cent up and customers numbers increased by 12 per cent. 

    Analysts expect turnover to increase by 5 per cent to $3.6 billion (£2.7billion) for the year to March 2021 with profits up 16 per cent to $620million. 

    A dividend of at least 7 cents (5.32p) is forecast, against 6 cents for the year to March 2020. 

    Shareholders can elect to receive their dividends in pounds or dollars, with the exchange rate fixed just before payouts are made.

    Midas verdict: Mobile phones have become essential items around the world. African countries are at an earlier stage in the digital revolution than most others, but progress is rapid and Airtel is helping to make it happen. Investing in Africa is never without risk but, at 57p, Airtel shares look like a bargain, particularly with a dividend yield of more than 9.5 per cent. 

    Traded on: Main market Ticker: AAF Contact: airtel.africa or Hudson Sandler on 020 7796 4133 


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