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Anyone knows why the share is free falling since one month ?
Read the posts directly below?
Currency devaluation is hitting profits....which translates into headwind for the share price
I am and have been a long term holder of AAF - to date as a business they have done really well over the past 5 or 6 years. - growing their customers, expanding their territories of operation, and bringing to market a great "mobile banking" product.
But i think that a problem is looming, and so, this morning, I have sold one third of my holding, and am debating reducing it further.
In FY 24 (The current Financial year), there have been two devaluations of the Nigerian Naira.
In April '23, 1,000,000 NGN converted into £1,740 GBP. Today, 1,000,000 NGN will convert into just £535.
The devaluation affects 1 out of 14 countries in which AAF has an operation, but it is their biggest market by far.
Take a look at the following link, which is a page on the investor section of the AAF web site. It is from the consensus of the ~6 brokers who follow the Company. It suggests that the effect of the Naira devaluation is going to be more than just a headwind. It will seriously impact revenues, EBITDA and Profits.
https://cdn-webportal.airtelstream.net/website/investor/main/pdf/20231004_Analysts'_consensus_vFinal.pdf
So the result for the current year is going to be significantly worse than FY '23. You can build a quarter by quarter analysis by looking at the most recent quarterly results RNS. With the second devaluation only occuring with 7 weeks of this FY remaining, my rough calculations suggest that there will be enough Free Cash Flow to cover a Flat dividend, if that's what the board felt able to do - but it would be a massively reduced cover.
My issue is the outlook for FY '25.
The effect of the two most recent devaluations will have a "whole year" effect on the business starting in April 2024, and this, I think will wipe out all the "good" down by the growth in the business, when it comes to converting their trading performance into a USD denominated dividend.
Mary BR suggests that currencies will bounce back, but generally speaking I don't think that there is much form for African currencies re-valuing against the USD / GBP. - very happy to be corrected on this!.
So, my view is that the business is achieving commendable growth, but given the sensitivities of their financial performance record, and in particular the dividend payouts, we have seen enough damage been done, to snuff out the upside of all the growth for this year and next, and my worry is that with high inflation and interest rates in Nigeria, there is every possibility that further devaluations will occur.
My Web link didn't seem to convert into my post, so I have copied the relevant paragraph below here:
Analysts' forecasts are presented on a 'reported currency' basis. These include inherent
assumptions for currency forecasts which are specific to each individual broker. In our
latest results report for Q1'24, Airtel Africa highlighted the following currency sensitivities:
"The expected annualised impact of the devaluation in Nigeria incurred in the month of
June 2023 is expected to be between $850m and $900m on annualised revenues, and
between $450m and $500m on annualised EBITDA. With respect to currency devaluation
sensitivity going forward, on a 12-month basis, a further 1% USD appreciation across all
currencies in our OpCos would have a negative impact of $48m on revenues, $24m on
EBITDA and $21m on finance costs (excluding derivatives). Our largest exposure is to the
Nigerian naira, for which a further 1% USD appreciation would have a negative impact of
$14m on revenues, $8m on EBITDA and $7m on finance costs (excluding derivatives). This
sensitivity analysis assumes the USD appreciation occurs at the beginning of the period."
More detail on this is in the investor section of the Airtel Website, and this particular page is under "analysts and Concensus" tab, at the far right of the menu options. (you have to scroll along to the right!), and then look under the link to "Consensus Forecast Data".
Naira watchers. On the assumption this continues, there will be an opportunity again in this stock. I see the brokers bandwagon has started again so will add when it falls and trim when it rises. Aiming for a near £zero cost holding and the volatility in this SP may well help me achieve that ahead of target.
Not for widows and orphans.
Thanks Fishinggardener. I didn't appreciate the devaluation was that severe - on your figures it's almost 70%, truly shocking over such a short period. I think you are right that devaluation is a feature of investing in Africa which has to be taken into account by investors, but the severity of the current situation is unusual - probably a symptom of worldwide economic malaise (apart from the US which seems to be doing fine, further worsening currency issues for AAF)
This article tells you the severity of the situation. The Naira has experienced a 230% drop in value over the past year. The joys of investing in Africa. I would not bank on a quick turnaround either. The South African Rand has been on a steady decline for 40 years.
https://www.voanews.com/a/nigeria-grapples-with-soaring-inflation-plummeting-currency-/7492283.html