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The share price of Airtel Africa (LSE:AAF), a multinational telecommunications and mobile money company, increased by over 10% last week, and in the long term I think this growth can continue. The recent price increase in Airtel Africa shares is likely due to a US$200 million agreement for an investment into its mobile money business, Airtel Mobile Commerce BV, by TPG’s Rise Fund.
According to the World Economic Forum: The Rise Fund is committed to achieving measurable, positive social and environmental outcomes alongside competitive financial returns. This has likely inspired belief and expectation in the company’s prospects in the company’s mobile money business.
Mobile money will be Airtel’s key to expanding success
According to Airtel Africa, the US$200 million investment will be used to cut debt and finance both network and sales infrastructure. CEO of Airtel Africa, Raghunath Mandava, said that this will enable the company to “realise the full potential from the substantial opportunity to bank the unbanked across Africa”.
The barrier to entry to mobile money can be lower than having a traditional bank account. Mobile money also has the possibility of curbing corruption by wages directly to employees. In Afghanistan, when policemen were paid via mobile money, they received their full pay for the first time. People may also prefer it for travelling as they can deposit money before they leave and then withdraw it when they get to their destination: this prevents theft during the journey. Using mobile money in preference to cash can broaden the tax base, which could be an incentive for governments to encourage its use.
On the 28th of January, Airtel announced that the application for renewal of its licence in Nigeria – for its subsidiary, Airtel Nigeria – had been approved for a period of 10 years, which will be until 30th November 2031. This can help to affirm the company’s position in this country with a population of 201 million, where it is already the third-largest Global System for Mobile Communications (GSM) operator.
Risks to consider
There are a couple of things that make me hesitate to add Airtel Africa shares to my portfolio. The first being Covid-19 and the lack of vaccinations currently in many African countries. Without adequate control of the disease, there could be increased infections or proliferation of new variants leading to instability in many of the countries where Airtel operates. The second is that it takes payment in local currencies but reports its earnings in US dollars, which can lead to an impact on earnings due to the exchange rate fluctuations.
However, due to the high market share Airtel has in many of the countries it operates in, coupled with its high population growth rates of countries and increasing demand for mobile money that Airtel can cater to, I feel that Airtel Africa shares could make a good long-term growth prospect for my portfolio.
The post Why I think Airtel Africa shares will prove to be a winning long-term investment appeared first on The Motley Fool UK.
Oliver Mardlin has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2021