As stocks have dipped in the first few months of the year, billionaire investor Warren Buffett has been buying. Many of the stocks he’s bought are inflation hedges. For example, with the price of oil soaring, Buffett has been buying both Chevron and Occidental Petroleum.
Although this is not the case of buying the dip, it seems this trade has been motivated by the company’s healthy prospects at the moment.
He has also bought larger stakes in both Apple and HP. It is likely that these trades have been motivated by the quality of these companies. Therefore, although Buffett does not typically invest in UK stocks, here’s one quality FTSE 100 stock I think he’d be tempted to buy.
What is the stock?
Airtel Africa (LSE: AAF) is, as its name suggests, a telecommunications company that operates in 14 different countries in Africa. It also operates a mobile money subsidiary. As Africa is an underpenetrated market, there is a general sentiment that the growth potential is extremely large.
This growth has been recognised in the company’s financial results. For example, in the recent full-year trading update, revenue managed to climb over 20% year-on-year to $4.7bn. Further, operating profits grew 82% to $755m. This demonstrates the quality of the company, a feature I believe Buffett would be particularly keen on.
The firm also offers a sustainable dividend, which can provide investors with a hedge against inflation. Indeed, for the FY2022, the firm has declared dividends totalling 5 cents, up 25% from last year.
Although this only equates to a yield of 3%, this is around average for FTSE 100 stocks. It is also extremely sustainable and leaves plenty of cash to reinvest into the company. As profits continue to grow, I believe the dividend could also have room to rise.
The risks
Unfortunately, one of Airtel Africa’s main benefits also presents one of its largest risks. In fact, although Africa offers multiple growth opportunities, it also presents a fair amount of instability.
For example, in Nigeria, which is one of Airtel Africa’s largest markets, democracy remains in a fragile state. This means there are some factors outside of the company’s control, which could see the share price decline.
There is also the risk of currency devaluation. As the company reports in US dollars, this could have a negative impact on future results.
Why I feel that Warren Buffett would buy
Buffett is a big fan of value stocks, and I believe Airtel Africa offers incredible value. In fact, after its recent results, it has a price-to-earnings ratio of 10, a price-to-sales ratio of just over 1, and a price-to-book ratio of just over 1.
These valuation metrics signal that the company is undervalued, especially considering its recent growth. They also mean that the risks facing the company are well priced in.
Further, CEO Segun Ogunsanya says he expects the company to deliver “revenue growth ahead of the market and moderate margin expansion”. If Airtel Africa can deliver upon this, it’s likely that the share price will be able to rise in the long-term.
Therefore, even though it is currently my second largest holding in my portfolio, I’ll continue to buy this FTSE 100 stock.