Airtel Africa Results Analysis: The Turnaround Continues

Airtel this week reported the financial results of its African operations, for the period ending December 2019. Our key insights from the numbers:

1. Airtel’s African operations have crossed the 100m subscriber mark; Airtel is the fourth pan-African operator to hit that milestone, after MTN, Orange, and the Vodafone group units (incl. Vodacom and Safaricom). Subscriber growth has been steady, averaging around 13% over the past two calendar years. Among pan-African groups, only MTN has added more users over that period. Only 31% of Airtel’s customers are active data users, and fewer than 20% use its fintech services – an indicator of potential, but also of the challenges of converting customers to new services.

2. The year 2019 saw Airtel’s best performance in African markets since its acquisition of Zain’s African operations in 2010 – in terms of cash generation. Operating free cash flow reached ~$730m in 2019, potentially making it Africa’s third-largest mobile operator on that basis. With revenue mostly flat and CapEx inching up, the performance was driven by a 20% increase in EBITDA – itself the result of aggressive cost-cutting in its non-Nigerian operations.

Airtel Logo

3. Airtel’s top line is maturing – revenue growth has settled to low single-digit levels, averaging around 3% over the past two years (growth in constant FX is slightly higher, due to FX fluctuations). This is concerning, at a time Airtel is accelerating capital investments. The cost-cutting will only go so far, and some operations will have to do better at justifying invested capital. The relatively low penetration of data services in Airtel’s operations does suggest there remains some top-line upside. While this is still a predominantly voice business (~60% of revenue), the contribution of voice is declining fast and is only marginally compensated by growth in other service lines.

Airtel Africa operating free cash flows – Inching back up, but will be tough to sustain

Airtel free cash flows - 2019

Sources: Xalam analysis of Airtel data

4. Airtel is present in 14 countries (16 including joint ventures) – but its African performance now largely rides on its Nigerian business. Nigeria accounts for around 37% of its African customer base, 40% of its revenue, but 60% of its free cash flow. This imbalance is not ideal but isn’t necessarily a bad thing. Of all the Airtel markets, Nigeria carries the most upside. As Airtel expands its 4G business and launches mobile money operations in Nigeria, there is strong underlying potential in its numbers.

5. The Nigerian performance is masking flaws across the remainder of Airtel’s markets. Excluding Nigeria, Airtel African revenue has been contracting (-4% in 2019), though cash is holding up well, thanks to Airtel’s extensive cost-cutting efforts. And therein, perhaps, lies Airtel’s African plan – grow in Nigeria, don’t lose money in other markets.

6. Airtel is again investing aggressively in its infrastructure, as it seeks to expand its 4G networks. CapEx reached around $700m on a calendar basis, up 23% from 2018 and the highest level of capital expenditure since 2015. At 43%, Airtel’s capital intensity is one of the highest among pan-African operators, a pattern likely to persist over the medium term.

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