By CHUKWUMAH KELECHUKWU
Investor apathy, market liquidity crisis, and confidence deficit about government policy directions are combining, waiting to ruin Airtel Africa Plc Initial Public Offering (IPO) scheduled for secondary listing on the Nigerian Stock Exchange (NSE) Friday July 5.
The African subsidiary of Indian telecoms giant, Bharti Airtel, which operates a telecoms and mobile money business across 14 African countries offered between 501.125 million and 716.406 million shares (25% minimum free float) to Nigerians at a price range of N363 to N454 per unit, having concluded arrangements for tomorrow listing on the Nigerian bourse
At the close of its offer on Friday June 28 however, the issuer managed to raise only N14 billion representing 26 percent of target N54 billion ($150 million) on offer representing 74 percent under-subscription. Through the book-building process, price of the offer tumbled below issuer price range.
“The apathy that greeted the offer forced price down below issuer’s price range of N363 – N454 (80 –100 pence) per unit. Due to weak demand, investors priced it below N363,” said a stockbroker privy to the fund raising.
Management team of the third largest telecommunication company in Nigeria will be at the Lagos trading floor today Thursday July 4 for interaction with market operators some of whom said that the low demand which greeted the offer pointed to liquidity crisis at the stock exchange as well confidence deficit in government policy direction.
“Two major factors could be responsible for the low demand for the IPO. There is liquidity issue in the market as investment appetite favour short tenor fixed income instruments.
“But more importantly, investors are not sure of the policy direction of this government. They are waiting to see clear-cut policy direction before taking investment decision,” said Tajudeen Olayinka.
According to the chief executive officer of Valmon Securities Limited, a dealing member of the exchange, the equity has good prospect as much as any telecom firm could be but for the market and the economy.
After a primary listing on London Stock Exchange (LSE) on June 28, the stock price took historic plunge by 16 percent to 67p (Pence) per unit, hours after the telecom firm was admitted on LSE, ranking among ”the worst debuts on European exchanges this year.”
The losses on first trading day at LSE knocked £500m off its opening valuation, giving the equity a market capitalisation of about £2.6 billion, down from £3.1 billion.
However, its market capitalisation closed at $3.46 billion on Wednesday July 3 as the stock appreciated 1.4 percent to 72 pence in late afternoon trading at LSE.
Airtel plans to use proceeds from the issue of the ordinary shares for debt reduction and telecom infrastructure, which is why analysts see it as growth stock.
The telecom company is highly leveraged and has sustained high operating cost over last three years pointing to minimal returns even after reducing its debt margin.
For instance, revenue for 2018 and 2017 stood at $2, 910 million and $2, 884 million respectively but operating expenses for the two years stood at $2, 375 million (for 2018) and $2, 718 million (for 2017).
The huge leverage coupled with persistently high operating cost that eats deep into its revenue is the snag on the stock which LSE has priced in.
But in emailed commentary, investment analysts at Lagos-based Meristem Securities Limited recommended N363 – N375.53 price range, stating that they arrived at a fair value of N375.53 (83 pence) for the offer using a blend of valuation methods.
Meristem base price recommendation is significantly higher than 67 pence which LSE investors priced the stock at first trading day June 28, and 72 pence close in late afternoon trading at Paternoster.
“The company possesses decent growth prospects across its operating markets, particularly in Nigeria which is the single largest contributor to company revenue, at 35.9 percent, and is key to the company’s strategy of driving revenue growth.
“However various operational risks existing in some of its markets may pose significant risks to the health of the overall business,” the analysts at Meristem Securities stated.
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