November 20, 2024/Cordros Report
In this report, we review our estimates and update our views on AIRTELAFRI for 2025E. So far, the sustained impact of currency pressures, particularly in Nigeria, overshadowed the key gains in operational performance driven by an increased customer base (+6.1% y/y to 156.64 million), expanded network coverage, and increased mobile money penetration. We marginally adjust downwards our year-end TP to NGN2,396.55/s (previously: NGN2,398.52/s) mainly reflecting the net impact of devaluation risk in Nigeria, while we maintain all our other key estimates on AIRTELAFRI’s fundamental performance for 2025E across the operating regions. Thus, we retain our “HOLD” rating and cite an 11.1% upside potential at the last closing price of NGN2,156.90/s (November 19). We estimate a total DPS of USD0.03 in 2025E, translating to a dividend yield of 1.9%. On our estimates, AIRTELAFRI is trading on a 2025E P/E of 31.7x and EV/EBITDA of 3.9x.
Return to positive earnings expected: We forecast AIRTELAFRI revenue to grow by 2.0% in 2025E, marking a slight rebound from the currency devaluation-induced slump in 2024FY even as operational performance in constant currency remains positive following a steady adoption of AIRTELAFRI’s services. We note that the outturn still reflects a decline in Nigeria’s revenue (-25.7% y/y) following the significant devaluation, as evidenced in H1-25. Meanwhile, across the other regions, we forecast steady growth from East (+8.9% y/y) and Francophone (+8.6% y/y) Africa, on higher subscriber count – East Africa: 75.56 million (+8.8% y/y); Francophone Africa: 35.03 million (+8.3% y/y) – and steady ARPU (East Africa: +1.0% y/y to USD2.01 | Francophone Africa: -1.6% y/y to USD3.24). Our model points to a slight increase in AIRTELAFRI’s data revenue (+0.3% y/y), a decline in voice revenue (-6.1% y/y) and substantial growth of income from mobile money services (+38.9% y/y). On the latter, we point to our expectation of an increase in Airtel Money subs to 42.96 million, even with ARPU steadying at USD2.00. We project a 435bps y/y decrease in AIRTELAFRI’s 2025E EBITDA margin, majorly from the opex pressures in Nigeria. Consequently, we forecast AIRTELAFRI’s EPS to print USD0.04 (vs loss per share of USD0.44 in 2024FY).
ROE, ROA recovery; ROIC, FCF margin dwindle: We expect a recovery in AIRTELAFRI’s ROE and ROA ratios in 2025E, as we expect a return to profitability following last year’s slump. Specifically, we project 2025E ROE and ROA to settle at 6.5% (2024FY: -3.9%) and 1.5% (2024FY: -0.9%), respectively. However, our model points to weakness in ROIC (-15.66 ppts y/y to 19.2%) and FCF margin (-20.36 ppts y/y to 7.6%), highlighting lower NOPAT and FCF outturns, respectively.
Valuation: Our year-end target price is NGN2,396.55/s, derived from a 60/40 blend of DCF and sector-relative valuation estimates. Our DCF FV is NGN2,697.77/s derived from an equal blend of FCFF (NGN2,832.45/s) and FCFE (NGN2,563.10/s) estimates, assuming a 20.2% WACC, 30.1% CoE and 4.0% terminal growth rate. Similarly, our multiple-based FV of NGN1,944.71/s was derived from an equal blend of P/E (NGN931.39/s) and EV/EBITDA (NGN2,958.02/s) multiples, utilising Bloomberg’s Middle East and African peer averages for both factors (14.6x and 4.9x, respectively) as multipliers.
