FTSE 250 incumbent Airtel Africa (LSE:AAF) is making significant progress in Africa, an emerging economic region. Based on recent news and current share price levels, should I add the shares to my holdings?
African economy
Airtel Africa is a provider of telecommunications and mobile money services as well as banking in Africa. It currently provides services and has a presence in 14 of the continent’s countries. Infrastructure spending in emerging markets is booming and expected to continue for the foreseeable future.
As I write, shares in Airtel are trading for 127p, whereas a year ago they were trading for 77p. This is a 64% return over a 12-month period. The FTSE 250 index has only returned 12% in the same period. Airtel shares are currently trading close to all-time highs.
Recent developments and performance
Airtel Africa last month reported its subsidiary SMARTCASH Payment Service Bank Limited has received approval in principle to operate a payment service bank business in Nigeria. This is a major deal for Airtel as this particular area of banking is growing fast in many African economies. Currently, there is a low level of banking products in the continent but wealth is rising, meaning there is demand for such products. Airtel should benefit from this.
Airtel also announced another major partnership in October. This was a partnership with payment firm Flutterwave. The partnership would see Airtel access further African countries and markets it has not broken into previously. This should help boost growth ahead.
Airtel’s most recent trading update, a half-year report for the period ending September 2021, was excellent. Revenue increased by over 25% compared to the same period last year. This was underpinned by growth in all its regions. Customer levels were up and it saw cash flow increase by over 40% to supplement its balance sheet. An interim dividend of 2 cents per share was declared, up from 1.5 cents in the same period last year.
FTSE 250 stocks have risks too
Airtel Africa’s operations are all centred around emerging markets, which is risky. When economic fluctuations and downturns occur, emerging economies can be the most volatile. Despite recent progress, the pandemic-related macroeconomic pressures could halt progress and growth if they were to continue. I view this as a short- to medium-term risk, however. Airtel also continues its growth trajectory through partnerships and acquisitions. Sometimes, corporate acquisition and partnerships don’t always yield growth and positive returns. This can also be more prevalent in emerging markets. Debt levels are also a bit higher than I would usually like.
Overall I like Airtel Africa as a company and would add the shares to my holdings at current levels. Despite trading close to all-time highs, it still looks cheap with a price-to-earnings ratio of 12. In addition, it seems to have a clear path for growth and boosting its offering and profile. If growth and performance continues, investor returns should increase such as via dividends, which will likely make me a passive income.