The All Share Index of the local bourse in Africa’s second largest copper producer, Zambia is at an all-time high after taken a positive cue from the Airtel Networks share price sprint over the last 3 months. Airtel Network stocks representing the telecommunications sector are trading for K43.5 a share, up 152% year to date to earn fifth place on the market capitalization score board at K4.52 billion. The Lusaka Stock Exchange Index closed 8,696.51 points.
It is reporting season for pension funds in the Southern African nation, a period that they ideally rebalance their respective portfolio’s. Underlying drivers of pension fund investment appetite includes a dividend paying and appreciating price stock which Airtel Networks is signaling. A recently published telecommunications authority (ZICTA) and central bank (BOZ) report reveals that 18.5% (FY22) of the Zambian population own smart phones compared to 5.76% (FY15). These factors continue to give telecommunications a positive cue which has fueled growth in the sector.
POST PANDEMIC RECOVERY
Revealed in its FY22 financials, Airtel Networks reveals a strong rebound post pandemic with a top line of K4.5 billion expected to growth 40% in FY23. The telecoms giant was in the COVID pandemic exposed to foreign exchange volatility adversely weighing the debt cost of the company that strained the bottom line. Airtel Networks was able to hedge strategically through localizing its debt through tapping into the medium term refinance life line that eased its costs giving earnings a positive cue. Other hurdles the company faces was reinvestment costs that were also marred by supply chain disruptions causing delays in rolling out upgrades. Networks performance is a testament of a rebound post pandemic as it races towards its 2008 position that was the highest market capitalization of circa $1 billion close to par to Zambia Consolidated Copper Mines – Plc.
Airtel Networks now reflects a 40.3% operating and 20.7% (from -13.1% FY20) net income margin growth that reveals containment of foreign exchange risk over the years and successful cost containment.
The interim dividend declaration K1.98 a share makes the stock attractive to investors and coupled with the telecoms outlook could rally pricing even higher in the medium term. For a stock viewed by analysts as undervalued for a long time whose valuation is skewed towards the last time it paid dividends, Airtel Networks fair value reverberates around a price earnings ratio of 6.25 yet trades a spread below close to K4.23 reflects further earnings latitude for correction 30% higher to K50 a share in the future.
The recovery of the stock is anchored on consistent sales growth and efficient cost rationalization that has clawed back operational margins. With strong prospects for the sector as a driver of economic growth projected at 40% this year, Airtel Networks is the best performing stock on the local bourse year to date and thus marked a strong buy.
The Kwacha Arbitrageur
