Data and So Che Generating Value at Airtel? Really??

The proverbial macro-economic challenges that have faced many of the premier companies in Zambia that we are looking at also extended to Bhati Airtel Zambia. This is company that is currently in an oligopoly (5 or less companies competing) fighting for a place in the soul of your mobile device.

In 2015, Airtel recorded an increase in subscribers from 3.6million (2014) to 4.6million at the end of 2015. Revenue increased by 19% which was impressive considering the competitive and macro forces against it. Brand is key for the company, however, they embarked on innovation drive agenda that saw an improvement in the quality of service of their offer and introduction of “So che”.

In terms of strategy, fiscal discipline was key in aligning the numbers. Therefore, their self-professed “War of Waste” was used to reign in their costs. However, there is another side to the story of the 195% increase in EPS from 2014 to 2015. Fixed asset sales of their masts (where they hang their wireless equipment) injected a substantial amount of cash into their operations that help mask what could have been a dismal year for the company. This further helped to ease of the haircut suffered on the back of exchange losses when the kwacha took a turn for the worse.

Furthermore, in light of increased competition on the smartphone market, the company opted to increase its inventory of (smart) phones. Smart move? Not sure, but the argument could be that ZICTA indicates an increased appetite by Zambians for data services. Speculatively the reason why one of their data competitors entered the market with a data only offer (the story of Vodacom will not be covered until they get listed on LUSEL).

What is impressive is that disposal of assets has actually yielded an improved return on non-current assets for the company. They are sweating what they are remaining with. From no debt in 2014, in 2015 they went into the debt market with gearing now at over 100%. Technology companies are synonymous with such gearing especially when they have a spell of innovation happening. This can seen from their over 90% return on capital employed (this will make any lender happy).

Full exposure will be known in 2016 and how they weather out the competitive and macro forces. At present investors looking at equity growth, Airtel is a stock to consider. However, note that in the medium term, dividends may have to be ignored as there may be fluctuations until the 4G reception settles.