July 29, 2022/FSDH Research

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Key Performance Highlights:

• Airtel Africa announced a 13.0% YoY revenue growth in reported currency to US$1,257 million in 1Q23. This overall growth is slightly slower than recent trends due to some specific challenges this quarter, largely as a result of the effect of barring outgoing calls in Nigeria for those customers who had not submitted their National Identity Numbers (‘NINs’) and the loss of tower sharing revenues following the recent sales of towers in Tanzania, Madagascar and Malawi. The all-round growth was driven mainly by an 8.9% YoY growth in the customer base to 131.6 million, supported by a 5.4% YoY ARPU growth (in constant currency terms). Looking at segmental revenue growth, the company recorded double-digit revenue growth  across all reporting segments. Voice revenue grew 8.5% (+11.3% in constant currency), data revenue was up 17.4% (+19.8% in constant currency), and mobile money services revenue grew by 28.2% (+26.5% in constant currency). Nigeria led the revenue growth by region, with the revenues growing 18.3% YoY, followed by East Africa (+14.1% YoY) and Francophone Africa recorded (+11.7% YoY) in constant currency.
   
• The network operating expenses spiked 17.3% YoY to $230 million, and access charges climbed 5.9% YoY to $107 million in 1Q23, while the employee benefits expenses edged 2.9% lower to $67 million. Sales & Marketing expenses surged by 24.5% YoY, owing to the rising inflationary environment in the economy. Other expenses also vaulted 10.3% YoY from US$107 million to US$118 million in 1Q23.
   
• The company’s operating profit surged 20.7% YoY (21.5 % in constant currency terms) to US$425 billion in 1Q23 due to revenue growth and modest improvements in operating efficiency in East Africa and Francophone Africa. Net finance costs increased by US$55 million due to US$51 million higher foreign exchange and derivative losses and US$6 million higher interest on lease obligations, partially offset by lower interest costs due to a reduction in debt (including US$505 million bonds repurchased in March 2022). The company recorded an effective tax rate of 35.5% in 1Q23 compared to 45.2% in 1Q22 due to the initial recognition of a deferred tax credit of US$21 million in Kenya in 1Q23. Consequently, profit after tax jumped by 25.4% YoY to US$178 million, mainly led by higher operating profits, which more than offset the foreign exchange and derivative losses. The company’s earnings per share soared 30.5% YoY to 4.3 cents, from 3.3 cents in the prior period. This increase was mainly due to higher operating profits and the recognition of a deferred tax credit of $21m in Kenya this quarter.
   
• The company recorded a 15.0% growth in underlying EBITDA in reported currency (+16.5% in constant currency terms) to US$614 million in 1Q23, driven by revenue growth and supported by continued improvement in operating efficiencies which more than offset inflationary cost pressures. The underlying EBITDA margin stood at 48.8% in 1Q23, an 82 bps YoY expansion in reported currency (52 bps in constant currency). Leverage also improved to 1.3x in 1Q23 from 1.8x in 1Q22, primarily driven by increased cash generation, EBITDA expansion and the receipt of US$550 million from mobile money minority investments. Net cash generated from operating activities slipped lower by 13.2% YoY to US$388 million, primarily due to higher cash tax payments due to higher dividend tax on declared dividends and increased taxable profits.                                                                                       
• Looking at the key operating metrics, the Customer base grew by 8.9% YoY to 131.6 million, with increased penetration across mobile data (customer base up 9.7%) and mobile money services (customer base up 19.5%). Airtel Africa also recorded an ARPU growth of 3.2% YoY in reported currency (+5.4% in constant currency) to $3.2 in 1Q23.
   
  Other key updates:

1. On 29 April 2022, Airtel Africa’s subsidiary SMARTCASH Payment Service Bank Limited was granted final approval to operate a payment service bank (‘PSB’) business in Nigeria. Further to this announcement, on 19 May 2022, Airtel Africa announced that Smartcash had commenced operations in Nigeria. Services were initially made available at selected retail touchpoints, and operations are now being expanded gradually across the country.
2. On 6 June 2022, Airtel Africa announced the purchase of 58 MHz of additional spectrum in the DRC, spread across 900, 1800, 2100 and 2600 MHz bands, for a gross consideration of US$42 million. The licence for paired spectrum in the 2100 band comes up for renewal in September 2032. All the other licences continue until July 2036. On 15 July 2022, the company announced that Airtel Kenya Networks Limited (‘Airtel Kenya’) had purchased 60 MHz of additional spectrum in the 2600 MHz band from the Communications Authority of Kenya for a gross consideration of US$40 million. The licence is valid from July 2022 for 15 years. This additional spectrum will support the 4G expansion for mobile data and fixed wireless home broadband capability and allow for future 5G rollout, providing significant capacity to accommodate the continued strong data growth in the country.
3. On 8 July 2022, the Group announced the settlement of a cash tender offer, redeeming US$450 million of the US$1 billion of 5.35% guaranteed senior notes due 2024 (‘Notes’). An aggregate principal amount of US$450 million of Notes was accepted for purchase for a total of US$462.6 million. All Notes accepted for purchase were cancelled ahead of their maturity in May 2024. This early redemption was made out of the Group’s cash reserves and is in line with our strategy of reduction of external foreign currency debt at the Group level.

Market Reaction: Investor reaction to the 1Q23 results was muted as the stock closed unchanged at N1,905.40, versus a 1.04% loss for the All-Share Index (28/7). Nonetheless, given the tailwinds in the telecom business and the improving business fundamentals, the Airtel Africa stock has appreciated about 36.07% over the last three months.

Airtel Africa Earnings Highlight 1Q23

Source: Company Financials, FSDH