If I’d invested £5,000 in Airtel Africa shares 3 years ago, here’s how much I’d have now!

Did I buy £5,000 from Airtel Africa (LSE:AAF) shares in February 2020, my shares are now worth £8,095. Only four other stocks are now in FTSE 100 have done better at the same time.

The company recently came to my attention after releasing its latest quarterly results. However, I wonder if I am too late to invest.

What is the story?

Airtel is the second largest telecom operator in Africa. Since it was registered in June 2019, it has grown rapidly.

In FY 2020, the company made a pre-tax profit of $598m. Two years later, this rose to $1.22bn. Unsurprisingly, the company’s stock price has followed a similar trajectory. It is now more than 60% higher than three years ago.

The business operates in three regions: Nigeria, East Africa and Francophone (predominantly French-speaking countries).

Looking back over two years, revenue has increased every quarter.

Area / $m	Q1 2021	Q2 2021	Q3 2021	Q4 2021	Q1 2022	Q2 2022	Q3 2022	Q4 2022
Nigeria	422	445	450	476	507	517	523	545
East Africa	358	394	428	459	436	455	487	502
Francophone	260	276	285	288	282	288	299	304
combined	1,040	1,115	1,163	1,223	1,225	1,260	1,309	1,351

At the same time, the average revenue per user (ARPU) remained close to $3 per month. This means that the growth in revenue has come from an increase in customers, rather than from extracting more money from existing customers. Indeed, users increased from 125.8m at the end of 2021 to 138.5m the following year.

Although Airtel’s ARPU may not be very high, it is compared to other competitors. For example, Vodafone generates a monthly revenue of $2.90 from each of the 184.5m users in Africa.

Future growth will come from the company’s mobile money offering. Today, half of adults in Africa do not have a bank account. Airtel Money currently transacts $100bn in payments annually.

Dividends

In addition to the impressive earnings and revenue, I like that the directors want to reward the company’s shareholders.

The dividend yield on the 2022 stock is 0.05 $.

Although other stocks currently offer better returns, the board’s ambition is to increase its annual payout by “mid to high single digit percentages“.

Compared to 2022, the interim dividend for 2023 has increased by 9%. Next dividend payment on shares of PT.INC.

Debt

Telecom companies typically have high levels of debt. The necessary infrastructure investment is not cheap, and is often financed by debt.

With net debt (debt less cash) 1.3 times higher than EBITDA (earnings before interest, tax, depreciation and amortization), Airtel appears to have debt under control.

On March 31st	Net debt $bn	Basic EBITDA $bn	Influence ratio
2020	3,247	1,515	2.1
2021	3,530	1,792	2.0
2022	2,941	2,311	1.3

What should I do?

According to the United Nations, Africa’s population will double by 2050. The company currently operates in 14 of the continent’s 54 countries. I see no reason why they can’t replicate the business model elsewhere. It should also benefit from anticipated population growth.

Also, Airtel shares are currently trading at a price-to-earnings (P/E) ratio of nine. This is low compared to some of the more well-known members of the FTSE 100.

Like most people, I only have a limited amount of money available to invest. But I will add stocks to my shopping list as things change.