Anyone else holding on to £AAF out there?
OK - so this is the black sheep of my portfolio - the worst performer by far and a share that I have (probably stupidly) bought more of recently to bring down the average price (to 39p). I have a painfully generous chunk of my overall portfolio allocated to this one. Its also the share I watch and research the most.
As far as I can see, weakening African currencies make this the biggest risk, and perhaps a prolonged impact of Corona in Africa. I also see that many investors might be put off by the majority shareholder parent company. However, they seem to be positive in nearly all other aspects, especially increasing revenues, and paying off debt and operating in some of the fastest growing markets in the world (population and economies). Couple that with a fat dividend, and I am really not sure why these are so out of favour. Everyday, I watch the price trying to rise before it is pushed down again. Is it the flight of investors from Africa in general, including Unit Trusts that might invest in Airtel Africa (LON:AAF)? Is there anyway to see who is selling/shorting?
Your views would be much appreciated.
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46 comments
Any views on Airtel Africa (LON:AAF) selling its assets (towers) to repay debts (which I seem to remember was previously declared as a plan B option)? Is this a good strategy long-term for the company or is it an unsustainable way of bolstering revenues? Your views are welcome!
Towers are primarily under utilised across all telcos so finally selling towers is a good move.
Questions is how will the incremental cash generated, be used.
Since the sale will lead to leaseback ie additional operating costs compared to previously tower costs being charged to depreciation, EBITDA will be negatively impacted.
If the additional cash generated from the sale will be used to repay existing liabilities only way this would be value accretive is if the current liabilities are in foreign currency and management expects devaluation moving forward AND the sale and leaseback transaction is in local currency.
Personally I see the stock going back to over 85 this month just by looking at the historical trend.
I've had Airtel Africa (LON:AAF) on my watchlist for a while because it shows up on my modified greenblatt screen and my pf needs more exposure outside of the UK. Finally took a small position this morning on the dip....
Hi all, been tracking by this share for a while now and wondering whether the placing provides a good entry point? But worried the institutional seller knows something we don’t? Anyone know why they decided to sell such a large chunk?
Good question- I'm already in this one and assuming that some disappointed longs are ditching here. The 50m issue was taken up at 75p, so maybe it has repolarised the valuation level. Am watching closely as it's a sizeable drop..........
I would encourage you all to think long-term on this one. The demographics and the consumer trends in Africa towards digitalisation, wireless and mobile money are unstoppable. I live in Kenya and almost no one uses cash anymore, and hardly any credit cards. Almost everything - from rural markets to utility bills to high-end shops - is paid through MPESA (unfortunately Safaricom and not Airtel). This is the future.
Reading your reminder about AAF being a decent long-term bet has prompted to top up my holding.
Airtel Africa (LON:AAF) had another placing for an institutional seller in mid-December, and I'm guessing it's the same one. There must be some agreement in place whereby they can't sell more than a certain amount at a time, as they are now locked in for a further 90 days. I have a largish (for me) holding in Airtel Africa (LON:AAF) and bought more this morning at 73.86p
If you look at the industry globally, Airtel Africa (LON:AAF) are growing much more than the likes of behemoth Vodafone (LON:VOD) which by comparison is now pedestrian
Thanks for the comments everyone. Took a small initial position today at 76p
Quite a bit of news recently, 14jul20 Large holding sold at 80p, Sale of SIM cards in Nigeria on hold, putting Mobile phone towers for sale to reduce debt. Personally i'm tempted to hold, seeing todays drop as a blip in what should be long term growth. Anybody else got a view on this share?
Can anyone please help me understand what happened over the last couple of days, causing the 18% price drop? As I understand it, 60 m shares were sold at 80p? By who? What does this tell us? Thanks in advance!
I am as mesmerised as you are and trying to figure out where this curveball came from.
It seems a stress seller was forced to sell its 1.6% stake, and found a buyer willing to pick them up at 80p. I hold. is this a buying opportunity caused by an unlucky institution in need of cash?
first 2020 multi bag on this one. When to sell?
I'm reading mixed results this morning. Revenues are up, as expected, as is Free Cash Flow and a number of other figures. But I am disappointed about the dividend cut as well as increased debt... I especially can't understand the latter, given the already high debt burden. Your views would be welcome.
I have a bit in this and have done well by banking dividends and trading on volatility. Seems to be decent price for such growth prospects.
Airtel Africa (LON:AAF)
I've just spent a little time looking at this company and remain confused by the rather bullish comments I've read here.
First, I take nothing away from the top line growth, and I do believe that it will continue to grow. I have no opinion on rate of top line growth.
Where I do have concerns is that it doesn't seem like the company make any cash, which is something that I would hope for in a fast-growing, debt-filled company.
I can see debt reduced significantly in 2019, but this was all IPO-related.
Taking away IPO funds, and it looks like they would barely have been able to make the final dividend payment.
(NB: I found no evidence of dividend payments in prior years in the IPO prospectus, but perhaps I missed it.)
Excluding IPO proceeds, and factoring in lease payments and debt-finance costs, it looks like cash generation before dividends was closer to +$80m, i.e. less than the $113m spent on dividends (incidentally a $113m payout would equate to a yield of c 4%)
Q1 cash flow was similarly unimpressive, with net borrowings actually increasing by $76m according to the cash flow statement.
Am I missing something? Is cash generation better than I can see?
Any thoughts would be appreciated.
Cheers
A
Hi Abtan - thanks for your comments. I must admit, I cannot analyse companies accounts to the same extent as you but somehow still manage to do well in picking good companies over the years. I also love to learn from others and was wondering if you might be kind enough to share your calculations re the IPO proceeds? Many thanks!
Hi Retireyoung
Here is the link to the 2019 Annual Report:
https://www.africa.airtel.com/assets/pdf/Airtel_Africa_AR2020.pdf
Slide 131 (page 129), Statement of Cash Flows.
1 - Operating Cash Flow = +$1,387m
I usually ignore working capital movements, but as they are so minimal here, I am taking the published cash generation figure of +$1,387m
2 - Investing Cash Flow = -$801m
3 - Financing Cash Flow - recurrent costs = -$507m
This is where I think it's important to remove one-off movements. I've circled these in black.
I have also circled in red recurrent costs expected each year (i.e. lease liabilities and finance charges) = -$189m-$318m = -$507m
True Cash Flow
1 + 2 + 3 = $1,387m - $801m - $507m = +$79m
I am aware that the Finance Charge (-$318m) will come down with the lower debt levels, but let's assume it stays constant for now.
Stockopedia is showing a forecast dividend yield for 2021 of 8.49%.
Market Cap is £2.24b * 8.49% = £190m = $250m
I'm not quite sure how the company will afford a dividend payment of $250m and be able to reduce its huge debt when it is only generating +$79m excess cash a year.
Q1 2020
I was hoping to see robust cash generation in Q1, but it looks like net debt actually increased by $76m.
Though it's worth pointing out that this could be a one off and one can only reach a firmer conclusion after more updates.
----
I hope that helps explain my thought process. If you or anyone else sees flaws in my thinking I'm happy to be corrected.
Cheers
A
This is super helpful. thank you!
Hi Abtan and others,
The one thing that I dont like seeing on the balance sheet is the Goodwill figure which comes in @ c.$4bn - another 400 in intangible assets makes me uneasy.
Anyone else looked at this? Its a share that has been on my radar and I definitely need to brush up on my accounting knowledge as the goodwill is dropping as well as the debt but I still dont like it being c50% of assets.
Airtel Africa (LON:AAF)
Hi there
I don't really follow Airtel Africa (LON:AAF) so there's not much I can add I'm afraid.
And on a personal note, I don't really (ever?) look at Goodwill either - I'm more of a cash person, as alluded to in an earlier post here.
If anyone thinks that I should be looking at Goodwill, I'd genuinely be interested to understand why (NB: I do know what goodwill is.)
Good luck beating that index beatingmrindex.
A
considering taking a holding in this seems like it may take time to be re-rated so my question to you guys who are holding - does withholding tax come into play with this share
Short article on Airtel Africa (LON:AAF) here outlining the market opportunities. I also believe these to be massive and the share is still heavily under priced considering its combination of dividend plus growth potential.
MIDAS SHARE TIPS: Ring up a bargain with Airtel https://www.thisismoney.co.uk/money/investing/article-8676785/MIDAS-SHARE-TIPS-Ring-bargain-Airtel.html?ito=native_share_article-masthead
Thanks for your reply Retireyoung. ipringle, like you I have decided to to ride out the volatility and think longer term it will come good. May top up if I can free up some funds.
Trying to figure out weather to sell now at a loss (bought at 64p) or hold on in the hope that longer term this will come good. The worry is that the slow decline seen over recent days will continue and I will be caught in a value trap. Your thoughts welcomed.
I can't really understand market reaction to Q1 results. No new major risks announced. IMHO - if you are willing to be patient, you shouldn't sell but rather buy now when the impatient/ scared are busy selling. I'll be topping up today. There is too much going for this company and the markets in which it operates, which are some of the fastest growing in the world. 10% dividend yield alone is very attractive, let alone inevitable growth. Once debt is paid off, more cash available for shareholders or CAPEX for growth.
I'm currently holding this share and nursing a loss of 20% at todays price of 53p. I still feel this company is heading in the right direction given its recent results update and this coupled with the markets it is operating in makes it a good long term prospect. I will continue to hold and accept the volatility.
Q1 results out:
Debt is still eye wateringly high, but the rate of cash generation is bringing it down rapidly. The results were negatively impacted by Covid but despite that all segments and all regions saw positive growth.
The sheer difficulty of operating in Africa means that those able to do so have huge opportunities - mobile money revenue is still relatively low but grew by 26% and data by 38%. With limited telecoms or financial infrastructure the mobile operators are often the primary providers of both.
Sub-Saharan Africa is expected to be the fastest growing consumer market globally as the century unfolds. Current consumer spending of around £1.4 trillion is anticipated to quadruple in the next thirty years. Lots of opportunity.
Still, tiny free float, currency and operational risks. It really isn't something for investors of a nervous disposition, but it's certainly going in the right direction.
timarr
Saw the below in the news today.
In emerging markets, China's yuan is near 7 to the dollar
after briefly breaking through the threshold on Tuesday.
Nigeria' naira fell 5.5% on Tuesday following central bank FX
sales at a lower rate -- possibly after pressure from lenders
and markets to unify its plethora of exchange rates.
Non-deliverable forwards see the naira losing a fifth of its
value over the next 12 months.
SP going up though. Any views Airtel Africa (LON:AAF) holders out there?
I'm long Airtel Africa (LON:AAF) yes there is currency risk but these large telco companies are used to operating in high inflation markets and have pricing power. Biggest risk is political interference through tax raids, but given their need for foreign direct investment, one would expect the govts to think twice. Bharti's Oneweb venture may benefit Airtel Africa (LON:AAF) but won't be a drag on the balance sheet.
Any thoughts on today's large drop?
profit taking on market weakness as it’s had a recent strong run. Has been volatile due to small free float.
Market Cap now large enough for AAF to be included in the FTSE 100, small float size and index funds buying seems to have lit a rocket under the SP.
And today it becomes a SuperStock!!
SP has been strong recently, I think main reason is because the parent company Bharti Airtel’s fortunes seems to have improved and the risk of them selling further Airtel Africa (LON:AAF) to raise cash is now much lower.
the free float is tiny, price has been very volatile since March. Sentiment turning positive on Amazon/Bharti rumours, weakening dollar, stabilising oil price, lack of Covid-19 impact in Africa. Large enough market cap for institutions to be interested who have probably given up waiting for the 2nd crash and now dipping toes back in, income funds may be interested considering the drought elsewhere. Singaporean funds got in earlier this year.
Oh my god... any ideas why this is going through the roof?
I made a quick profit on these after the big March crash. I've got back in again around 37p. I've noticed that AAF share price hates weak oil and strong USD. Valuation and growth prospects look stunning but there is high currency risk as revenues are in local currency while a lot of costs are USD. Weak commodity prices hurt African government revenues who are then tempted to raid cash generative companies with fixed assets e.g. telcos.
Yes - well observed... you are right. I also wonder if Facebook's recent big investment in Reliance Jio (India) and the rumoured interests of Google and Apple in the other big telecoms companies there could suggest a possible future interest from these giants in AAF. See here https://www.businessinsider.in/business/corporates/news/amazon-and-airtel-deal-may-ape-reliance-jio-and-facebook/articleshow/76195307.cms
I don’t think the big tech firms have much to gain from buying into emerging market Telcos, I suspect Reliance is an exceptional case as it is a huge conglomerate which also has many other consumer facing businesses e.g. retail both shops and e-commerce.
OK - there we go... some sign of life... significantly improving Quality, Value, Momentum and finally price, now with StockRank for 76. This only had a StockRank of 24 on 12th May!!!
Hi Robin,
IMHO there are some other potential issues, over and above the ones you and timarr have already mentioned. I've not looked at Airtel Africa (LON:AAF) before but possibly the most obvious one is the ridiculously low free float - Stockopedia shows it as 12.2%. Is that correct? Is that a record low free float for a FTSE 350 company? This will surely limit interest from larger institutions which might otherwise wish to build a stake. Personally, I've always felt that there should be a minimum free float size before any company can be admitted onto the LSE, let alone into a major index.
All the best, Si
Hi Robin
I bought a small stake in Airtel Africa (LON:AAF) after the recent results and I'd agree that the continuing fall is perplexing. The majority stake under the control of Sunil Mittal and the debt burden are bound to be long-term drags on performance but that doesn't really explain a PE of 4 and a yield of 18% - especially given the FCF and the rate at which the debt is being paid down, which is a virtuous circle, as the FCF increases as the debt interest payments fall.
There doesn't appear to be any existential risk to shareholders either. The FCF will fund debt maturities even given the dividend. Even in the worst case banks aren't going to call in the debt on a business that is this profitable. There may, of course, be a short-term hit to revenues but the longer term growth path is about as certain as you can find in our current situation.
The critical role of mobile networks in the region is well understood - not just for communications but also for retail and mobile money. The latter is essentially a contact free experience, which is obviously the trend everywhere at the moment. People moving away from cash is directly good for business but also good for the overall economy in the longer term. In the short-term they'll probably see a hit to revenues in this area as they drop fees in response to government initiatives. In the longer term it just adds to the momentum.
That all being the case I assume that the fall is mainly due to investor risk aversion looking at Covid-19 risk in sub-Saharan Africa combined with a lot of currency risk. Personally I'm averse to companies carrying high levels of debt, but everything has its price. Of course, there may be people out there shorting the stock, but who cares what other people think?
If anything I'm minded to buy more, but I certainly can't see any reason to sell at this point.
timarr
Thanks Timarr. These are some helpful perspectives. I live in Zambia and people here are very dependent on cell phones, as well as mobile money. While jobs and incomes of many have been hit by the Corona semi-lockdown, many who are now doing home office have massively increased their data usage as there are relatively few fixed-line internet connections. People not being able to travel so much has also lead to a risk in use of mobile money. Anecdotally, I recently spoke to a couple of Airtel employees asking if they had witnessed decreased business since Corona and they said it had rather increased. I am not sure how much insight they had into the business.
I am sure similar will apply to other African countries.
The biggest risk must be currency - when I arrived in Zambia 5 years ago, it was 7 Kwacha to 1 USD. Now it is about 20. If Zambia defaults on its Eurobonds (due 2021 I think, who knows what it will slide to. The tax at 48% also seems very high (but I would need guidance on this).
I know this is just one of 14 countries in AAF's portfolio, but it perhaps provides some insights. Their recently published strategy and assessment of risks is useful.
Analogy - Africa can yield amazing fruit, but sadly a lot rots on the way to market.
Anecdotally, I recently spoke to a couple of Airtel employees asking if they had witnessed decreased business since Corona and they said it had rather increased. I am not sure how much insight they had into the business.
That would correspond to what we're seeing elsewhere in the world. The lastest Airtel Africa (LON:AAF) report did discuss some of the downsides but, at worst, they all look temporary and they all help the adoption of mobile services in the longer term.
As I'm sure you're aware, it's a mistake to lump all sub-Saharan countries together. The late Hans Roslen showed that the trigger for economic growth was a drop in average family size. The chain of causality is that for such a drop to occur parents need to feel confident their children will survive to adulthood. For that to happen you need functioning healthcare and female education. For those things to happen you need functioning institutions - and that lays the groundwork for economic liftoff.
If we look at the countries covered by Airtel Africa we find that they have all seen child mortality drop significantly in the last 20 years. Only the Seychelles comes close to something we might consider acceptable in Europe, but Kenya, Congo, Ghana, Gabon, Rwanda and Tanzania are all approaching the same level as India, and almost certainly into the economic growth phase. Uganda, Malwai, Zambia, Tanzania and Madagascar are all approaching the same level. Even the outliers are all making progress in the right direction - for instance, the Democratic Republic of Congo has seen child mortality halve in twenty years.
Of course, it's a jump from identifying this trend to believing that Airtel Africa (LON:AAF) will benefit from it - but you can see why investors are interested in mobile network operators in the region as they really ought to directly benefit from economic growth. CV-19 will, ultimately, be just a bump in the road.
timarr
I bought AAF some weeks ago when it was around 64p. Having recently subscribed to Stockopedia, it was interesting and helpful to read the discussion on this thread. Just wanted to give a thumbs up to those who have posted here.