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A quarter of broad-based growth
* Better-than-expected performance: Airtel Africa’s 3QFY20 performance was marginally better than our expectations. Revenue increased 4.6% QoQ to USD883m on a reported basis and 5% QoQ to USD896m (in-line) on a constant currency (CC) basis. EBITDA was up by 15.3% QoQ at USD421m on a reported basis (margin expansion of 440bp to 48%) and by 7.4% QoQ to USD404m on a CC basis (5% beat; margin expansion of 100bp to 45%). PAT grew by 7.3% QoQ to USD103m on a reported basis and by 29.4% QoQ to USD110m on a CC basis. Blended ARPU was up 3.8% QoQ at USD2.8 (inline), with net subscriber addition of 3.3m to 107.1m. Monthly churn increased 70bp to 5.2%.
* Revenue growth on all fronts: Voice, Data and Mobile Money revenue grew by 4.5%, 7.9% and 6.3% QoQ to USD513m, USD247m, and USD84m, respectively. ARPU was up 4% QoQ to USD2.6 in Data, declined 5.6% QoQ to USD1.7 in Mobile Money and remained flat QoQ at USD1.6 in Voice. In terms of subscribers, Mobile Money exhibited the highest increase of 7.2% QoQ to 17m, while Data/Voice subscribers were up 3.1% QoQ at 33m/107m. This indicates growth in Mobile Money/Voice was led by healthy subscriber addition, while Data growth was driven by both ARPU and subscribers. Region-wise, Nigeria recorded highest revenue growth of 8.8% QoQ to USD357m, East Africa revenue increased 4.6% QoQ to USD321m and Rest of Africa revenue was flat at USD222m. EBITDA grew across regions, with Nigeria/East Africa/Rest of Africa recording sequential growth of 12.1%/4%/7.8% to USD195m/USD130m/USD83m.
* Concall Highlights: (1) Voice revenue growth was driven by both existing and new areas, but Data revenue growth majorly came from existing towns. (2) Mobile Money growth remained strong but slowed down YoY (base quarter had one-time benefit of extensive network rollout); KPIs of Mobile Money remained healthy. (3) Effective tax rate for 9MFY20 stood at 41.7%, implying a marginal increase due to higher withholding tax on dividend from subsidiaries (it is expected to remain similar level for the year).
* FCF improvement led by healthy earnings and lower interest: Airtel Africa’s FCF increased to USD391m (+94% YoY) in 9MFY20, mainly on account of better EBITDA and lower interest cost (lower debt), partially offset by increasing capex. However, FCF is expected to be lower in the next quarter as capex is skewed toward the fourth quarter. Management’s guidance for FY20 capex was unchanged at USD650m-700m. Further, Airtel Africa has reduced its leverage to 2.2x from 3.2x a year earlier.
* Valuation: Airtel Africa trades at GBX72 on LSE with market cap of USD3.5b and EV (excl. lease obligation) of USD5.6b. The stock trades at FY21E EV/EBITDA of 3.3x.
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