The Independent Uganda: You get the Truth we Pay the Price
The company’s share price remains steady reflecting investors’ cautious “wait and see” approach
Kampala, Uganda | THE INDEPENDENT | On November 7, Airtel Uganda marked a significant milestone by becoming the second telecom company to be listed on the Uganda Securities Exchange, following in the footsteps of MTN Uganda, which accomplished this feat two years ago.
The company’s highly anticipated initial public offering (IPO), however, failed to generate the level of enthusiasm and attention initially anticipated in the local stock market, achieving a subscription rate of 54.45% for the Shs 800 billion worth of shares, each priced at Shs 100, offered for sale, resulting in the raising of Shs 211.43 billion.
Not even the offer of 10 shares for every 100 shares applied for by retail investors buying more than 2,500 shares during the IPO, could attract a full subscription.
This subscription rate, though slightly below MTN’s achievement of 64% for the 4.47 billion shares, signifies a substantial step in the government’s push to encourage local ownership within the telecom industry.
Airtel Uganda, majority-owned by Bharti Airtel, had initially aimed to divest a 20% stake, in line with the country’s new licensing requirement for telecom firms, with the ambition of raising Shs 800 billion through its IPO, valuing the company at Shs 4 trillion.
Presently, 11% of the shares have been taken up, with the National Social Security Fund acquiring 10.55% of the total offered shares, and retail investors holding 0.34%, with plans to list the remaining 9% shares.
Interestingly, Airtel Uganda’s share price remained steady on the first day of trading, reflecting investors’ cautious “wait and see” approach. Unlike MTN Uganda, Airtel Uganda excluded its fintech arm, Airtel Money Services, from the IPO.
Nevertheless, while the Airtel Uganda IPO didn’t generate the expected market frenzy, it represents a notable development in the country’s stock market and reflects the evolving landscape of the telecom industry.
The future trading performance of Airtel Uganda’s shares will now be closely observed as the company transitions into a publicly listed entity, marking a significant milestone in the region’s telecommunications sector.
During the listing on the Uganda Securities Exchange, Airtel Uganda Chief Executive Manoj Murali said during the listing on USE that the IPO was a success.
“We want to share our prosperity, growth, and dividends with the local Ugandan community and this IPO helps them be part of our company and profits,” he said.
Keith Kalyegira, the Capital Markets Authority Chief Executive Officer, said despite the undersubscription, there was an indication that the investors had confidence in the Ugandan market, but suggested a new approach to going public.
He said, for example, that the immediate listing of shares just after the IPO might have an impact on the public response, hence the possible need to delay the trading longer.
USE Chief Executive Officer, Paul Bwiso said there is a need for further sensitization of the public about equity as an investment alternative.
Industry observers suggested that Airtel Uganda’s decision to exclude its fintech services from the IPO may have contributed to the low subscription. Fintech is a rapidly growing sector, and Airtel Uganda’s omission may have signalled an intent to retain earnings in a seemingly more lucrative service in the near future.
Fluctuating profits
With over 13.8 million active subscribers and a market share of approximately 47%, Airtel Uganda’s performance has experienced fluctuations in recent years. In 2018, the company reported profits of Shs 268 billion, but this figure dipped to Shs 216 billion in 2019.
Then, there was an upward trend in 2020 and 2021, with profits reaching Shs 277 billion and Shs 393 billion, respectively. However, in 2022, there was a decline in profits, which amounted to Shs 326 billion.
The company has promised a dividend payout ratio of 95%, which is calculated based on either retained earnings or net profit after tax, depending on whichever figure is higher.
Airtel Uganda has set its sights on a projected profit after tax of Shs 457 billion for the year ending December 2023 driven by data and voice services. The company’s total revenue is expected to reach an impressive Shs 1.86 trillion during the same period.
The company’s revenue is forecast to increase by 16.6% year on year citing significant growth in voice and data segments, driven by increased usage and continuous customer base expansion through quality acquisitions.
Voice revenue is expected to grow by 7.0% year on year, supported by a substantial customer base increase of 17.1%. Meanwhile, data revenue is projected to experience robust growth of 33.6% year on year, contributing significantly to the overall revenue, which is expected to reach 39%.
Potential risks ahead
Despite this promising outlook, the company grapples with the impact of rising fuel prices on operating expenses. These expenses, including regulatory charges, are forecast to increase by 13.5% due to planned distribution and network expansion.
However, the percentage of operating expenses relative to revenues is expected to decrease from 44.7% in 2022 to 43.5% in 2023, primarily due to an efficient and fixed operations model.
The company’s strategic plans for the year include bolstering capacity and coverage by adding more sites, with a particular focus on enhancing the data network. This expansion is estimated to cost approximately Shs 202 billion, contributing to a total capital expenditure of Shs 244 billion for 2023, with the majority allocated to the addition of these crucial network sites.
The country’s telecom industry also remains fiercely competitive, with both traditional and non-traditional operators vying for market share, particularly in terms of pricing, which poses a risk to Airtel’s revenue and margins. Effective differentiation, customer attraction, and retention strategies are imperative amidst the intense competition.
Additionally, the emergence of non-traditional players offering internet-based alternatives, a shift from voice to data services, investment requirements in data infrastructure, and the necessity of cost competitiveness all contribute to the intricate landscape that Airtel Uganda will have to navigate.
Furthermore, it faces the capital-intensive nature of the telecom industry, including the impact of finance costs and currency exchange risks.
Nevertheless, the company remains optimistic and relies on adaptability, innovation, and cost-effectiveness to sustain success in this dynamic telecommunications arena.
Airtel Uganda made its entry into the Ugandan market in 2010 through the acquisition of Zain Uganda. The beneficial owners of the company are India’s Bharti family through Bharti Enterprises (Holding) Private Limited. Airtel Africa plc, which is listed on the London Stock Exchange, holds the majority of shares in Airtel Uganda. Following the IPO, Airtel Africa plc is expected to retain at least 80% of its stake in the company.
