Airtel Africa: Underserved Nigeria Is An Opportunity For Mobile Payments

The logo of telecommunications company Airtel is pictured on an umbrella and chairs set up by vendors in Abuja, Nigeria July 9, 2019. REUTERS/Afolabi Sotunde - RC1810227110

Despite having Africa’s largest population, penetration of financial services in Nigeria remains low. More than half of adults lack a bank account. That has created opportunities not just for banks but telecoms operators as well.

As with other African mobile telecoms groups, London-listed Airtel Africa has an opportunity. Nigeria is already the mobile telephone group’s biggest market.

A move into Nigerian mobile banking and payments should commence soon. That partly explains why its market capitalisation has risen three-quarters in the past year to above £5bn. It entered the FTSE 100 index in January.

Full-year results released on Wednesday revealed why. Revenues were 23 per cent higher. Group ebitda margins rose to 49 per cent last year, up almost 300 basis points. Voice and data services were the drivers, but mobile money is growing fastest in terms of customers and revenues. Full approval for a Nigerian mobile banking licence at the end of April paves the way for a rollout of financial services later this year.

It does have competition. MTN Nigeria, the local subsidiary of the South African network, also recently received its mobile banking licence. As the country’s largest operator it poses a serious threat.

Still, Airtel Africa’s revenues from its mobile money expansion in Nigeria could rise from zero to as much as $250mn by 2027, thinks Rohit Modi at Citi. Its total mobile money divisional revenues were $553mn last year.

That potential explains why private equity investors TPG and the Qatar Investment Authority bought minority stakes in this unit last year. Its ebitda — at $270mn — climbed 38 per cent in 2021. Adding Nigeria should support that rate.

Yet the group trades at an enterprise value of four times next year’s ebitda, a third less than MTN Nigeria and less than half Safaricom, which is dominant in Kenya. That was not enough to prevent the shares falling on the day. But Airtel Africa should remain on investors’ radar screens as the operator moves into Nigeria.