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Airtel Africa Q3 Results: Operating Profit Hits All-Time High On Revenue Boost

Operating profit of Bharti Airtel’s Africa unit rose 24% to $399 million on the back of revenue that rose 14.2% to $883 million.

People take photographs on their smart phones. (Photographer: Prashanth Vishwanathan/Bloomberg)
People take photographs on their smart phones. (Photographer: Prashanth Vishwanathan/Bloomberg)

Airtel Africa Plc’s operating profit beat estimates in the quarter ended December. Not just that, it also breached its previous record to hit a new all-time high as revenue rose, operating leverage improved, and costs fell.

Operating profit of the continent’s second-largest mobile operator rose 24 percent year-on-year to $399 million, according to its statement. Margin of Bharti Airtel Ltd.’s Africa unit expanded more than 400 basis points to 45.2 percent.

The company’s revenue in constant currency terms increased 14.2 percent—the eighth straight quarter of double-digit growth—in the three months to December. That was driven by higher revenue from data and mobile money business.

While revenue from data services grew nearly 40 percent over last year to $243 million, that of mobile money rose as much as 27.5 percent to $82 million.

“Revenue growth accelerated in the third quarter as a result of improved performance in Rest of Africa, supported by solid results in Nigeria and East Africa,” Raghunath Mandava, chief executive officer at Airtel Africa, said in the statement. “Revenue growth continues to be broad-based across voice, data and mobile money.”

Airtel Africa’s average revenue per user, however, remained flat at $2.8, while its total customer base rose to 107.1 million from 103.9 million in the preceding quarter.

But the company’s bottom line declined on account of a one-off deferred tax recognition last year. In the third quarter, it reported a tax expense of $83 million against a tax income of $28 million last year.

The Africa unit’s free cash flow—the cash a company can generate after accounting for capital expenditure—jumped more than sevenfold to $155 million during the quarter. That was aided by a fall in interest payment on lower debt, reduction in working capital, higher operating profit and a decline in capex over last year.

The company’s net debt remained flat at $3.2 billion sequentially but lower than $4.2 billion a year earlier. The proceeds from its initial public offering were used to repay debt. The company had mopped up nearly $670 million from investors through its IPO. The shares were issued at $1.01 apiece and are currently trading more than 8 percent lower on the London Stock Exchange.

Six of the eight analysts tracking the stock have a ‘buy’ rating and the consensus 12-month target price suggests a potential upside of 23 percent.

Goldman Sachs, which has a bullish rating on the stock and the highest target price, expects the growth momentum to drive a rerating over the next 12-months. The global research firm also expects the company’s operating profit to grow at an annualised rate of 10 percent over FY19-24.

Bharti Airtel continues to gain footing in Africa even as its India business faces pressure. It’s one of the worst-hit carriers after Mukesh Ambani’s Reliance Jio upended the world’s second-biggest telecom market. The Supreme Court’s ruling that telecom operators have to include non-core revenue while calculating levies dealt another blow.

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The directors of Airtel Africa, in the quarter ended September, had expressed concerns about the group’s ability to continue as a going concern because of the adverse outcome of the adjusted gross revenue verdict. They, however, allayed the fears in the third quarter. “The concern no longer exists as the group now has adequate facilities to operate as a going concern,” according to the company’s statement.