Equity Analyst, LightStream Research

Supun Walpola

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Capital Markets

Airtel Africa PLC / Equity Capital Markets

<a href="https://www.smartkarma.com/entities/airtel-africa-ltd" target="_blank" data-smartkarma-citation="entities:28131:1" rel="noopener">Airtel Africa Ltd (1668113D LN)</a>  (AA) is the African subsidiary of <a href="https://www.smartkarma.com/entities/bharti-airtel-ltd" target="_blank" data-smartkarma-citation="entities:953:1" rel="noopener">Bharti Airtel (BHARTI IN)</a>. AA has filed for its IPO in the London Stock Exchange (LSE) – which would be immediately followed by a secondary listing in the Nigerian Stock Exchange (NSE). AA plans to raise $647m from the offer (excluding the greenshoe option), with proceeds to be used primarily to deleverage the company’s debt-ridden balance sheet. The LSE offer is priced at £0.80-£1.00 and the NSE offer is priced at ₦363-454, which implies a market capitalisation of $4.2bn and an EV of $7.5bn at the midpoint of the IPO range. AA’s shares are expected to trade on the LSE and the NSE from 28th of June and 4th of July respectively.  
We expect AA’s consolidated revenue to grow at a 3-year CAGR of 11.3% to reach $4.3bn by FY03/22E (cf. $3.1bn in FY03/19) driven by strong growth in Data and Airtel Money segments. Revenue from the Data segment is expected to grow at a 3-year CAGR of 22.9% over the forecast period (FY03/19-22E) driven by increasing smartphone use and 4G rollout in the region. Revenue from Airtel Money is expected to grow at a robust 3-year CAGR of 51.8% over the forecast period, mainly due to a sizeable mobile money opportunity opening up in Nigeria, following the deregulation of the industry. However, despite increasing mobile connectivity in the region, we expect revenue from the traditional Voice business to grow at a modest 3-year CAGR of 2.9% over the forecast period, primarily due to aggressive price wars. In particular, we expect revenue growth to accelerate towards the end of our forecast period when the mobile money opportunity in Nigeria starts materialising.
We expect AA’s operating profit to increase at a 3-year CAGR of 22.2% over the forecast period. AA’s operating margin is expected to expand by 740bps to 31.2% by FY03/22E (cf.23.9% in FY03/19), primarily due to the significant shift in the company’s revenue mix to potentially high margin Airtel Money segment – which we expect would account for around 20% of AA’s revenue by FY03/22E, from around 8% in FY03/19. 
Our target FY2 EV/EBITDA multiple of 5.5x gives AA a valuation of $8.5bn, which translates into a share price of £1.12, a healthy 12% upside from the higher end of the IPO price range. With the potential for strong revenue and OP growth in the medium term, we believe AA IPO is a worthwhile opportunity for global investors to get exposure to the growing African mobile market. However, investors should be wary of potential solvency concerns.

Airtel Africa Ltd (1668113D LN)  (AA) is the African subsidiary of Bharti Airtel (BHARTI IN). AA has filed for its IPO in the London Stock Exchange (LSE) – which would be immediately followed by a secondary listing in the Nigerian Stock Exchange (NSE). AA plans to raise $647m from the offer (excluding the greenshoe option), with proceeds to be used primarily to deleverage the company’s debt-ridden balance sheet. The LSE offer is priced at £0.80-£1.00 and the NSE offer is priced at ₦363-454, which implies a market capitalisation of $4.2bn and an EV of $7.5bn at the midpoint of the IPO range. AA’s shares are expected to trade on the LSE and the NSE from 28th of June and 4th of July respectively.  
We expect AA’s consolidated revenue to grow at a 3-year CAGR of 11.3% to reach $4.3bn by FY03/22E (cf. $3.1bn in FY03/19) driven by strong growth in Data and Airtel Money segments. Revenue from the Data segment is expected to grow at a 3-year CAGR of 22.9% over the forecast period (FY03/19-22E) driven by increasing smartphone use and 4G rollout in the region. Revenue from Airtel Money is expected to grow at a robust 3-year CAGR of 51.8% over the forecast period, mainly due to a sizeable mobile money opportunity opening up in Nigeria, following the deregulation of the industry. However, despite increasing mobile connectivity in the region, we expect revenue from the traditional Voice business to grow at a modest 3-year CAGR of 2.9% over the forecast period, primarily due to aggressive price wars. In particular, we expect revenue growth to accelerate towards the end of our forecast period when the mobile money opportunity in Nigeria starts materialising.
We expect AA’s operating profit to increase at a 3-year CAGR of 22.2% over the forecast period. AA’s operating margin is expected to expand by 740bps to 31.2% by FY03/22E (cf.23.9% in FY03/19), primarily due to the significant shift in the company’s revenue mix to potentially high margin Airtel Money segment – which we expect would account for around 20% of AA’s revenue by FY03/22E, from around 8% in FY03/19. 
Our target FY2 EV/EBITDA multiple of 5.5x gives AA a valuation of $8.5bn, which translates into a share price of £1.12, a healthy 12% upside from the higher end of the IPO price range. With the potential for strong revenue and OP growth in the medium term, we believe AA IPO is a worthwhile opportunity for global investors to get exposure to the growing African mobile market. However, investors should be wary of potential solvency concerns.

Airtel Africa IPO: Exposure to Growing African Mobile Market with a Healthy Upside

Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

We think Africa Airtel could be worth up to 111 pence/share driven by a DCF valuation of single-digit revenue growth and steady margins, which offers 11-23% upside from the 80-100p pricing range for its upcoming listing.  On a comparable basis, the shares are valued at the low end of the trading range for African mobile companies and at a discount to the pre-IPO funding which provides some valuation support for the offering. This is a follow-on to our initial pre-IPO report <a href="https://www.smartkarma.com/insights/africa-airtel-ipo-prospectus-first-look-the-mobile-money-opportunity-in-nigeria-stands-out" target="_blank" data-smartkarma-citation="insights:30475" rel="noopener">Africa Airtel - IPO Prospectus First Look: The Mobile Money Opportunity in Nigeria Stands Out</a> ​

We think Africa Airtel could be worth up to 111 pence/share driven by a DCF valuation of single-digit revenue growth and steady margins, which offers 11-23% upside from the 80-100p pricing range for its upcoming listing.  On a comparable basis, the shares are valued at the low end of the trading range for African mobile companies and at a discount to the pre-IPO funding which provides some valuation support for the offering. This is a follow-on to our initial pre-IPO report Africa Airtel - IPO Prospectus First Look: The Mobile Money Opportunity in Nigeria Stands Out ​

Africa Airtel: We See Upside at Top of the Valuation Range

Africa Airtel has filed to list on the London Stock Exchange in an initial public offering to raise $750mn (£595mn) with proceeds to be used to pay down debt. The pricing range implies a market capitalization of $3.8-4.6bn (£3.0-3.6bn). Africa Airtel is the second-largest mobile operator in sub-Sahara Africa and has operations in 14 countries. Its largest market is Nigeria, which generates almost 40% of revenue and half of consolidated free cash flow.Many of the typical emerging market themes are at play here with a scope for sustainable long-term growth driven by an expansion in mobile services offset by headwinds from uncertain economic growth, currency headwinds and capricious regulators.As with the other African companies, the potential value creation from mobile money services is intriguing, particularly in Nigeria which is only now seeing these services launch. This represents what could be a c. $900mn opportunity for Nigerian mobile operators. For investors, Airtel Africa's LSE listing could offer an easier way to play that than <a href="https://www.smartkarma.com/entities/mtn-group-ltd" target="_blank" data-smartkarma-citation="entities:24897:1">MTN Group Ltd (MTN SJ)</a> (diluted by its wide footprint) or MTN Nigeria (local listing).In this insight, we look at the market opportunity, review Africa Airtel, lay out what we know about the IPO details and discuss some the forecast and valuation assumptions. We also have included a list of questions for the management team when the roadshow kicks off.

Africa Airtel has filed to list on the London Stock Exchange in an initial public offering to raise $750mn (£595mn) with proceeds to be used to pay down debt. The pricing range implies a market capitalization of $3.8-4.6bn (£3.0-3.6bn). Africa Airtel is the second-largest mobile operator in sub-Sahara Africa and has operations in 14 countries. Its largest market is Nigeria, which generates almost 40% of revenue and half of consolidated free cash flow.Many of the typical emerging market themes are at play here with a scope for sustainable long-term growth driven by an expansion in mobile services offset by headwinds from uncertain economic growth, currency headwinds and capricious regulators.As with the other African companies, the potential value creation from mobile money services is intriguing, particularly in Nigeria which is only now seeing these services launch. This represents what could be a c. $900mn opportunity for Nigerian mobile operators. For investors, Airtel Africa's LSE listing could offer an easier way to play that than MTN Group Ltd (MTN SJ) (diluted by its wide footprint) or MTN Nigeria (local listing).In this insight, we look at the market opportunity, review Africa Airtel, lay out what we know about the IPO details and discuss some the forecast and valuation assumptions. We also have included a list of questions for the management team when the roadshow kicks off.

Africa Airtel - IPO Prospectus First Look: The Mobile Money Opportunity in Nigeria Stands Out

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MTN Nigeria Communications (MTNN NL)

Airtel Africa IPO: Exposure to Growing African Mobile Market with a Healthy Upside

Airtel Africa Ltd (1668113D LN) (AA) is the African subsidiary of Bharti Airtel (BHARTI IN). AA has filed for its IPO in the London Stock Exchange...

Supun Walpola

Africa Airtel: We See Upside at Top of the Valuation Range

We think Africa Airtel could be worth up to 111 pence/share driven by a DCF valuation of single-digit revenue growth and steady margins, which...

Kirk Boodry

Africa Airtel - IPO Prospectus First Look: The Mobile Money Opportunity in Nigeria Stands Out

Africa Airtel has filed to list on the London Stock Exchange in an initial public offering to raise $750mn (£595mn) with proceeds to be used to pay...

Kirk Boodry

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