FX Devaluation Hinder Revenue Growth
In its recently released H1:2024 financial result, Airtel Africa Plc (AIRTELAFRI) posted a marginal increase in its consolidated topline in reporting currency. Overall Revenue increased by 2.28% YoY in H1:2024 (vs. 12.88% YoY in H1:2023). This slowdown in growth can be attributed to currency devaluations across markets in all its regions of operation. In Nigeria, the effect of the FX liberalization policy—which resulted in a sizable devaluation in June 2023—on revenue and EBITDA was mostly captured in Q1:2024.
Foreign Currency Obligations: A Recurring Theme
In H1:2024, AIRTELAFRI recorded USD471.08mn in unrealized foreign exchange losses owing to the currency devaluation in Nigeria. Also, given the Group’s strategy to have its OpCos hold more debt, finance costs (excluding FX losses) increased by 12.39% YoY (or USD44.31mn) to USD401.88mn.
After considering the factors outlined, we maintain our bearish stance on Airtel Africa Plc. and retain "SELL" recommendation, with a revised target price of NGN1052.58 (41.20% downside potential as of November 20th, 2023).
Airtel Africa PLC Formerly known as Airtel Africa Ltd. Airtel Africa PLC is a United Kingdom-based provider of telecommunications and mobile money services. The Company offers an integrated suite of telecommunications solutions, including mobile voice and data services as well as mobile money services both nationally and internationally. It offers traditional mobile voice services, with a primary focus on data and non-voice services through its third generation (3G) and fourth generation (4G) networks. It also offers mobile money services under its Airtel Money brand to customers in all of the Company's 14 countries of operation in Africa, primarily in East Africa and Central and West Africa. The mobile voice business line comprises pre- and post-paid wireless voice services, international roaming and fixed-line telephone services. The mobile data business line comprises data communications services, including second generation (2G), 3G and, increasingly, 4G data services, and other value added services (VAS).
ARM Securities Limited is a full-service brokerage house that offers best-in-class brokerage services to local as well as foreign private and institutional investors. Formerly known as Hamilton Hammer, the Company commenced operation in 1994 and was acquired by ARM Investment Managers in 2008--an acquisition which has successfully re-positioned the company as a recognized brokerage firm in Nigeria. The Company is a dealing member of the Nigerian Stock Exchange (NSE) and is regulated by Securities and Exchange Commission (SEC). ARM Securities research team provides insightful commentaries on the Nigerian economy and its equity and debt markets using an approach which incorporates a thorough understanding of the fundamentals of the industries and companies under coverage. The research therefore adopts an integrated methodology of top-down analysis and bottom-up stock selection, which focuses on publicly quoted companies on the Nigerian Stock Exchange that are judged to offer the highest potential for earnings growth. In addition, its analysts provide periodic commentaries on a range of topical global and local issues which provide investing clients with a holistic view of the opportunities and risks in today’s financial market landscape.
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