On Tuesday, Deutsche Bank adjusted its price target on shares of Airtel Africa (AAF:LN), increasing it to GBP1.55 from GBP1.50, while retaining a Buy rating on the stock. The adjustment reflects a modest increase in the valuation of the telecom operator despite revised revenue expectations and depreciation & amortization assumptions.
The new stock price target represents a 3% rise from the previous target of 150p per share. This change is attributed to the recalibration of Airtel Africa's valuation in line with its peers, which are now trading at an average of 5.4 times the financial year 2025 (FY25) enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) ratio, compared to 5.0 times previously.
The reassessment comes even as the British Pound has gained strength against the US Dollar. Airtel Africa's financials are reported in US Dollars, but its share price is listed in British Pounds.
The bank's updated forecasts for Airtel Africa mainly factor in lower revenue projections for the company's operating company in Nigeria and reduced depreciation & amortization assumptions for the group as a whole. Despite these changes, Deutsche Bank's expectations for the Group's EBITDA margins remain consistent.
Airtel Africa is scheduled to report its second-quarter results for FY25 on October 25, 2024. Deutsche Bank has indicated that it will publish a preview of this event closer to the reporting date. Based on the firm's FY25 estimates, Airtel Africa is currently trading at 4.5 times EV/EBITDA and 12.0 times price to earnings (P/E).
The company's equity free cash flow and dividend yields stand at 2.0% and 4.1%, respectively, with an estimated net debt to EBITDA ratio of 1.8 times by the end of FY25. According to consensus estimates compiled by Bloomberg for FY25, Airtel Africa's peers are trading at an average EV/EBITDA multiple of 5.4 times.
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