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Airtel Africa‘s (LSE:AAF) share price has swept higher in recent sessions. It’s risen as a broader restoration in FTSE 100 shares has intensified.
However the African telecoms big’ rebound has proved short-lived. A disappointing full-year buying and selling assertion has seen it crash again to earth on Thursday (9 Might).
At 110p, Airtel shares have been final dealing 5.2% decrease immediately. I’m questioning whether or not the market has overreacted to immediately’s newest buying and selling assertion, and whether or not I can buy on the dip.
There are risks, as I’ll clarify. However the potential share value upside is colossal. So what ought to I do subsequent?
Robust underlying numbers
Airtel Africa is among the largest telecoms suppliers on the continent. It provides providers to virtually 153m prospects stretched throughout 14 African international locations.
Within the 12 months to March, Airtel grew revenues at fixed currencies by 20.9% to $5bn, it introduced immediately. This in flip pushed earnings earlier than curiosity, taxes, depreciation, and amortisation (EBITDA) 21.3% larger, to $2.4bn.
Its whole buyer base jumped 9% within the interval, with the variety of knowledge customers rising 17.8% 12 months on 12 months to 64.4m. In the meantime, buyer numbers at its cell cash operations elevated by a fair higher 20.7%, to 38m.
Forex crash
These are all spectacular numbers, I’m positive you’ll agree.
So, why the sudden plummet in Airtel Africa shares? Effectively, the enterprise continues to be grappling with extreme forex depreciation throughout a few of its markets.
At precise trade charges, revenues dropped 5.3% final 12 months, whereas EBITDA sank 5.7%. On a pre-tax foundation, Airtel swung to a lack of $63m from a $1bn revenue a 12 months earlier.
Forex devaluations in Nigeria, Kenya, and Malawi compelled it to eat a forex-related $549m cost final 12 months. And the corporate warned that it’s going to expertise additional currency-related stress this 12 months.
The Footsie agency introduced that the present 12 months’s outcomes “will continue to reflect the currency headwinds experienced during FY’24.” That is because of the timing of the devaluations in Nigeria’s naira.
So what subsequent?
Sadly for Airtel, forex devaluations are tipped to proceed in Africa within the quick time period. However as somebody who invests for the lengthy haul, I’m contemplating utilizing immediately’s value droop as a possibility to put money into the corporate.
The potential rewards of proudly owning Airtel Africa shares may very well be colossal as telecoms demand takes off. Business physique GSMA has predicted that 4G adoption in sub-Saharan Africa will greater than double to 45% over the subsequent 5 years.
Encouragingly, the corporate has confirmed it has what it takes to faucet this rising market, as immediately’s outcomes confirmed. I don’t assume that is mirrored within the cheapness of its shares.
The corporate now trades on a ahead price-to-earnings (P/E) ratio of 9.2 occasions. As an added sweetener, immediately’s share value decline has pumped the dividend yield as much as 5.7%.
I anticipate Airtel’s share value to get well strongly from present ranges. And within the course of I might get pleasure from some vital capital beneficial properties, to not point out some wholesome dividend earnings. It’s a inventory I’ll rigorously think about shopping for immediately.