August 23, 2024/CSL Research
Airtel Africa’s topline performance was impacted by a decline in both Voice Revenue (down 23.4% to US$476m) and Data Revenue (down 15.8% y/y to US$409m). However, Mobile Revenue grew moderately (up 10.1% y/y to US$222m). Despite the challenges in Voice and Data Revenue, the company achieved an impressive bottom-line performance, largely due to a substantial reduction in Net Finance Costs which decreased by 64.1% y/y to US$245 million in Q1 2025 from US$683 million in Q1 2024. As a result, Airtel Africa returned to profitability, reporting a Pre-tax Profit of US$74 million in Q1 2025, a significant turnaround from the Pre-tax Loss of US$221 million in Q1 2024.
Given our expectations of a reduction in Net Finance Costs, we forecast a Pre-tax Profit of US$479 million, compared to the loss of US$63 million recorded in FY 2024. We maintain our long-term view that given the significant investments made by the firm in improving its network infrastructure and expanding its data coverage, there should be significant improvement in the quality of the company’s services, making us believe Airtel Africa is well-positioned to benefit from further growth in mobile money and data penetration in Africa’s telecommunications industry.
We have raised our target price to N3,010/s from the previous N1,953.4/s reflecting the company’s improved financial performance. The increase in our target price is also supported by a higher conversion rate from USD to Naira. Our target price implies a 36.82% upside from the last closing price of N2,200 per share on 22 August 2024. Consequently, we have upgraded our recommendation on the stock to a BUY from our previous SELL rating. We arrived at our target price using a combination of Discounted Cash Flow (DCF) and Relative Valuation methods, assigning a weighting of 60:40.
Source: Company, CSL Research |
Airtel Africa’s Q1 2025 financials showed a 16.0% decline in Revenue, dropping to US$1.16 billion from US$1.38 billion in Q1 2024. However, on a q/q basis, Total Revenue grew marginally by 3.4%, rising to US$1.16 billion from US$1.12 billion in Q4 2024. The y/y decline in Revenue was primarily attributed to significant currency devaluations in several countries, including Nigeria, Malawi, Zambia, and Tanzania.
Further analysis of the company’s financials revealed that Revenue from its Nigerian operations plummeted by 51.6% to US$256 million in Q1 2025, down from US$528 million in the same period last year. This sharp drop was largely due to the devaluation of the Nigerian Naira, which depreciated from a weighted average rate of N503/US$ in the previous period to N1,384/US$ in the current period. In contrast, revenues from the East African region increased by 6.5% to US$423 million in Q1 2025, up from US$397 million in Q1 2024. Similarly, revenues from the Francophone Africa region grew by 2.9%, reaching US$307 million in Q1 2025, up from US$299 million in the same period last year.
Due to the impact of currency devaluations on the company’s performance, Data Revenue declined in Q1 2025 by 15.8% y/y to US$409 million, down from US$486 million in Q1 2024. This decline occurred despite increased data usage, driven by enhanced network capacity and growing smartphone penetration. The company reported an 8.6% y/y increase in its total customer base, reaching 155.4 million, with data customers rising by 13.4% to 64.4 million. In Q1 2025, data usage per customer increased by 28.6% to 7.3 GB per month, up from 5.7 GB in the prior period. The expansion of the company’s 4G network has led to nearly 100% of its sites delivering 4G services. We project a 14% y/y growth in Data Revenue for 2025, with the contribution of Data Revenue to total Revenue expected to average around 41% in 2025.
As anticipated, Voice Revenue continued to decline, falling by 23.4% y/y to US$476 million in Q1 2025, down from US$621 million in Q1 2024. Despite the drop in Revenue, the company’s total customer base grew by 8.6% y/y to 155.4 million. The decline in Voice Revenue can be attributed to the growing shift towards digital services and the ongoing impact of currency devaluations. We expect Voice Revenue to improve in 2025, driven by the company’s efforts to enhance its network capacity, particularly in rural areas. We forecast a 5% growth in Voice Revenue for 2025, following the 13% decline anticipated in 2024. Despite this increase, we estimate that the contribution of Voice Revenue to total revenue will moderate to 39.27% in 2024, down from 42.10% in 2023.
There was a notable improvement in Mobile Money Revenue, which increased by 10.1% in Q1 2025 to US$222 million from US$201 million in Q1 2024. Mobile money customers grew by 14.9% y/y to 39.5 million. The growth in Mobile Money Revenue was driven by strong performance in East Africa and Francophone Africa, with Mobile Money Revenue up by 31.7% and 18.4%, respectively in both regions. The expansion of the company’s distribution network, particularly through exclusive channels like Airtel money branches and kiosks, has supported this growth. We estimate a 26% growth in Mobile Money Revenue in 2025, compared to the 21.1% growth reported in 2023. For FY 2025, driven by anticipated growth in the company’s Voice, Data, and Mobile Money segments, we forecast a 14% increase in Revenue to US$5,712 million, up from US$5,000 million in 2024.
In Q1 2025, Direct Network Operating Costs declined by 13.8% y/y to US$231 million, down from US$268 million in Q1 2024, while Operating Expenses decreased by 5.5% y/y to US$410 million from US$434 million in the same period. Despite these reductions in costs, the company’s EBITDA fell by 23.3% y/y to US$523 million in Q1 2025, compared to US$682 million in Q1 2024, primarily due to a decline in Revenue. Consequently, the EBITDA margin also decreased by 429bps y/y to 45.2% in FY 2024. Operating Profit dropped by 27.5% y/y to US$335 million in Q1 2025, down from US$462 million in Q1 2024, amidst a 14.5% increase in Depreciation and Amortization expenses to US$718 million. The company attributed the decline in EBITDA margin to substantial increases in fuel prices across its operating markets and the reduced contribution from Nigeria after the Naira devaluation. We project the EBITDA margin to remain stable at 48% in FY 2025.
Net Finance Cost decreased significantly, down 64.1% y/y to US$245 million in Q1 2025 from US$683 million in Q1 2024. This reduction mirrors a 63.4% y/y decrease in Finance Costs, while Finance Income remained relatively unchanged. The decline in Net Finance Costs can be attributed to reduced derivative and foreign exchange losses, with the company recording FX losses of US$136 million compared to US$471 million in the previous year. Additionally, the reduction in Finance Costs is attributed to the company’s strategy of repaying a substantial portion of its foreign debt to strengthen its capital structure. The company has successfully reduced its foreign debt obligations to 14% of its total debt, down from 48% in the previous year. This repayment included a full settlement of US$550 million of the company’s HoldCo debt. The company announced the complete repayment of its 5.35% Guaranteed Senior Notes maturing in May 2024. This US$550 million bond repayment was made entirely from its cash reserves. This development is crucial in mitigating the impact of currency translation on the company’s financial statements. Given expectations of reduced currency fluctuations and lower foreign debt obligations, we forecast a further reduction in Net Finance costs by 16.24% to US$1,484 million in FY 2025 from US$1,703 million in FY 2024.
Overall, the company reported a Pre-tax Profit of US$74 million in Q1 2025, marking a significant turnaround from a Pre-tax loss of US$221 million in Q1 2024. The company incurred a Tax Expense of US$43 million, compared to a Tax Credit of US$70 million in Q1 2024, resulting in a Net Profit of US$31 million in Q1 2025, in contrast to a Net Loss of US$151 million in Q1 2024. Basic earnings per share (EPS) improved to 0.2 cents, compared to a negative 4.5 cents in the prior period. Given our expectation of a reduction in Net Finance Costs, we forecast a Pre-tax Profit of US$479 million for FY 2025 compared to the loss of US$63 million recorded in FY 2024.
In December 2023, the Nigerian Communications Commission (NCC) issued an industry-wide directive mandating Airtel Nigeria to bar all SIMs not linked to their National Identity Numbers (NIN) by February 28, 2024. Additionally, customers who had submitted their NINs but remained unverified were to be barred by July 31, 2024, a deadline that was initially set for April 15, 2024. The directive also limited the number of active SIMs per customer to four, with any excess SIMs to be barred by March 29, 2024. This directive is part of the Federal Government’s ongoing NIN-SIM harmonization exercise, which requires all subscribers to provide valid NIN information to update their SIM registration records. Since the directive was issued, Airtel Nigeria has verified 8.7 million customers and is actively engaging with approximately 4.9 million customers whose NINs are yet to be verified. The company estimates that US$3 million to US$4 million in monthly revenue is at risk due to this issue. However, Airtel is working closely with the NCC and other relevant authorities to accelerate the verification process, aiming to minimize service disruption and limit the revenue impact. Given the company’s proactive approach, it is anticipated that this directive will not have a significant impact on its revenue in the short term.
Valuation
We have raised our target price to N3,010/s from the previous N1,953.4/s, reflecting the company’s improved financial performance. The increase in our target price is also supported by a higher conversion rate from USD to Naira. Our target price implies a 36.82% upside from the last closing price of N2,200 per share on 22 August 2024. Consequently, we have upgraded our recommendation on the stock to a BUY from our previous SELL rating. We arrived at our target price using a combination of Discounted Cash Flow (DCF) and Relative Valuation methods, assigning a weighting of 60:40.
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Airtel Q1 2025 Earnings review .pdf
