Key points
- This FTSE 100 stock is cheap compared to its sector and competitors
- Strong revenue and profits underpin this company
- It has been active on the sales front, generating over $225m from two deals in the past two months
The FTSE 100 index contains some of the biggest companies in the world. When investing, I like to turn to these stocks to find solid and consistent growth for my own portfolio. Airtel Africa (LSE: AAF), a telecommunications provider operating throughout East Africa, is one such company that I have found. It has only just joined the index, but with growth in its fundamentals and active sales, it might just bolster my portfolio. Why so? Let’s take a closer look.
It’s a cheap FTSE 100 stock
An important metric used by investors to see if a stock is cheap or expensive is the price-to-earnings (P/E) ratio. This is found by dividing the share price by the earnings-per-share (EPS). In Airtel Africa’s case, it has a P/E ratio of 20.85. Taken in isolation, this doesn’t tell us all that much.
In comparison with another FTSE 100 telecommunications competitor, Vodafone, Airtel Africa is much more appealing, value-wise. Vodafone’s P/E ratio is 434.27, which is significantly higher. What’s more, the telecommunications sector has an average P/E ratio of 25.84.
What this tells me is that Airtel Africa is undervalued compared to its sector and a competitor. I therefore think I would be getting this stock on the cheap.
Strong fundamentals underpin this FTSE 100 stock
Revenue figures tell a story of sustained growth over the past three years. For the calendar year 2021, revenue stood at $3.9bn. This has risen from $3bn for the same period in 2019. This represents compounding annual growth of 9.1%. In spite of this, earnings per share have fallen over this time, from ¢19.54 to ¢9.
Over the past three calendar years, profits before tax have also grown. This figure has doubled in this time, increasing from $348m to $697m. Just this month, however, two funds sold 58m shares after the stock joined the FTSE 100 index, causing the share price to fall 10% in one day. While this may seem troubling in the short term, it should not make much impact in the long term.
For me, the fundamental data is going in the right direction and is testament to the profitable business model employed by this FTSE 100 stock.
Active on the sales front
There are two recent sales of note by Airtel Africa. The first was in December 2021 that consisted of the sale of part of the company’s mobile money business to Abu Dhabi-based Chimera. This generated $50m and demonstrates the strength of the business. The mobile money segment, for instance, generated profits of $185m for the year ended March 2021. It may also publicly list in four years.
Furthermore, the FTSE 100 company sold its Tanzania telecommunications tower equipment for $176.1m. The proceeds of this will go towards reducing the stock’s not insignificant net debt of $4.2bn.
Airtel Africa boasts strong fundamentals and, compared to its sector, is undervalued. Not only would I be getting a bargain, but I’d also be buying shares in a company that is eager to grow in the long term. I won’t hesitate to buy now!
Andrew Woods has no position in any of the shares mentioned. The Motley Fool UK has recommended Airtel Africa Plc. 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.
This post was originally published on Motley Fool
