Airtel Uganda IPO: A Dividend Play With Little Growth Prospect

Bharti Airtel Uganda has opened its anticipated Initial Public Offering (IPO). On sale are 8bn ordinary shares with a par value of UGX 1 each at an offer price of UGX 100 (KES 3.95) per share.

The listing will be on the Main Investment Market Segment of the Uganda Securities Exchange (USE). The offer opened on 30th August 2023 and runs through 13th October 2023.

The announcement of allocations will be on 30th October 2023 and the refund of excess application funds – in the event of an oversubscription – will be on 31st October 2023 which also debuts the listing and commencement of trading on the USE and dispatch of SCD account statements to successful applicants.

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The purpose of listing is to meet the regulatory requirement – that obliges all National Telecom Operator licensees to list 20% of their shares on the USE within two years of the effective date of receiving the license.

The sale will not include the Airtel money business. This follows an asset transfer agreement between Airtel Uganda and Airtel Mobile Commerce Uganda Limited executed on 18 June 2021 – resulting in the separation of the mobile commerce business from the telecommunication business.

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While most of the valuation metrics we examined are palatable, we worry about the elevated price-to-book multiple, with investors expected to pay 32x the book value – a level we think will cause a rough landing for investors after listing; especially considering a particularly high gearing compared to peers.

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Dividend remains the key plank for the offering (95% payout, 9% dividend yield), which we think can be sustained somewhat.

Also, insofar as the shift to over-the-top-technologies like WhatsApp is expected to favor the growth of data consumption, we are concerned by the ability of data revenues to single-handedly cushion the overall top line from the shocks of maturing voice and SMS shy of mobile money – as data is price sensitive and affordability (pricing) is a key proposition to consumers.

From our vantage point, we believe that the opportunity cost attached to Airtel Uganda for investors focused on capital gains might be painfully high in the long run as suppressed activity levels may hinder movements on the price function or worse, see price dwindle post-IPO and remain depressed longer than expected.

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