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AIRTELAFRI H1'20: Impressive Performance Only Soured by Reduced Earnings
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AIRTELAFRI H1'20: Impressive Performance Only Soured by Reduced Earnings 

we arrived at our target price of NGN503.00, which gives an upside potential of 22.62% from its current price. Hence, we recommend a BUY on the counter

By Meristerm

Solid Operating Metrics Boost Topline
Airtel Africa Plc.’s (AIRTELAFRI) recently released H1:2021 result was broadly positive, and in line withour expectations. A comparatively stronger revenue performance in the second quarter (+14.22% YoY) lifted overall revenue growth in the first half to 10.67% YoY, with revenue settling at USD1.81bn(NGN700.59bn). Topline growth reflected a strong performance across its operating subsidiaries in Nigeria (+20.20% YoY), East Africa (+21.90% YoY) and Francophone Africa (+4.40% YoY). Excluding the impact of currency devaluation from Nigeria (6.50%), Zambia (51.00%) and Kenya (4.50%), groupwide revenue growth would have been reported at 16.40% YoY. Revenue performance was supported by improved operating metrics during the period. Customer growth was reported at 12.02% YoY (with net YoY customer additions of 12.49 million customers), while average revenue per user (ARPU) inched higher by 6.80% YoY to USD2.80 per month.

Data and Mobile Money Poised to Lead Revenue Growth
Notable improvements were recorded in data revenue for the period (+26.27% YoY), which we attribute to the increased demand for data, following the outbreak of the COVID 19 pandemic, and higher smartphone penetration in its operating markets. This was evident in the improved volume of data usage per customer (to 2.5Gb, from 1.6GB in 2019), while Data ARPU increased by 10.10% toUSD2.50 per month. The outlook for data demand is positive, which bodes well for data revenue growth in subsequent periods. We also expect this to be supported by the company’s continued expansion of its 4G network capacity. Along with the data segment performance, we highlight the marked improvement in the company’s mobile money segment. The company processed mobile money transactions worth a cumulative total of USD20.68bn in H1:2021, up by 45.67% from USD14.19bn in H1:2020. As such, mobile money revenue surged by 24.30% YoY to USD181mn. We like that the company has continued to expand its mobile money ecosystem, announcing new partnerships with Standard Chartered Bank, Mukuru, WorldRemit and MoneyGram. We expect this to deliver additional value to customers which would lead to improved mobile money revenue growth in subsequent periods. In sum, we have set our revenue projections for 2021FY to USD3.88bn (+12.77% YoY), driven largely by our expectations for data revenue and mobile money revenue growth.

One-off Exceptional Items Drag Bottomline Lower
Operating profit for the period advanced by 19.49% to USD472mn, aided by improved cost management. Free cashflow generated during the period also witnessed a strong growth of 52.00% to USD319mn, due to improved EBITDA growth (+USD92mn), lower capex (+USD31mn) and positive cashflows from working capital (+USD30mn), which were slightly offset by higher cash taxes (-USD49mn). We however highlight that PBT and PAT for the period were significantly lower, at
USD281mn (-11.36% YoY) and USD145mn (-36.68% YoY) respectively, due to one off exceptional items (USD72mn) and derivative gains (USD46mn) recognized in the prior period. Furthermore, we highlight the company’s new progressive dividend policy which aims to grow declared dividends annually by a mid to high single digit percentage, from a base of USD0.04c per share for 2021FY. We understand that this will be sustained until its reported net debt to EBITDA ratio falls below 2.0x.

Recommendation
We expect EBITDA to settle at USD1.68bn (NGN649.56bn, +9.77% YoY) and adopted a Target EV/EDITDA ratio of 4.75x. After adjusting for its net debt of USD3.09bn (NGN1.12trn), we arrived at our target price of NGN503.00, which gives an upside potential of 22.62% from its current price. Hence, we recommend a BUY on the counter


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