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With a 59% Free Cash Flow Margin Consider Averaging into Airtel Africa

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While Airtel Africa is not catching the eye of investors as the company’s has not risen so far this year, it remains cash flow profitable with propitious future prospect.

Airtel Africa’s shares has year to date (YTD) gains of -24.11 percent that underperforms the NGXASI index and a price to earnings multiple of 16.52 means its shares are overvalued and investors might be getting it all wrong for punishing the telco giant because of a huge foreign exchange loss which is an exceptional item most likely not to reoccur.

Why Airtel remains a Buy

The company produced 9.50 percent revenue growth year-on year (YOY) in its first quarter 2024 earnings. Its subscription base was up 8.70 percent to 143 million.

In addition, its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) increased by 11.10 percent to $682 million for Q1. EBITDA is a rough form of cash flow used to measure how much cash the company generates before debt service obligations.

A more accurate measure of cash is the free cash flow that stood at $822 million, and this figure is high than underlying EBITDA number of $682 million.

In other words, the company is more profitable on a cash flow basis than the EBITDA cash flow measure. EBITDA does not include some items that are included in FCF, like changes in working capital, interest income and expenses, taxes and capital expenditures. So, FCF is a fuller measure of cash flow, and at Airtel stock it is higher than EBITDA.

We could also take a look at Airtel Africa’s free cash flow (FCF) margin. For example, revenue in Q1 was $1377 million and its FCF was $822 million.This means its FCF margin in Q1 was very high at 59.69 percent.

Analysts at Chapel Hill Denham Limited have cut their 12 months (12M) target price on Airtel to N1,590 from N1,800,26, but maintain their Buy rating on the stock.

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