What does the Airtel IPO promise to offer? 

Uganda’s equity markets have been busy lately. Yes, the MTN initial public offering (IPO) in 2021, even when it was undersubscribed, came between a dry spell but injected good energy into a market that takes years without an IPO. 

The last IPO - Cipla in 2018 - had not been that energetic given that its offer of 657.17 million shares was relatively small to create the buzz that the market needed. 

So, now that the market has another potentially big IPO, it is safe to say that Uganda Securities Exchange (USE) and the entire equity sector is getting there. 

Getting to levels where securities have the potential to mold the economy in terms of mobilising capital and investment vehicles. 

It is now official that before the end of this year Airtel will float at least eight billion shares or 20 percent of its stake through an IPO. 

The offer is almost double MTN’s 4.5 billion shares and promises a period of activity to December. 

Investors are already in the waiting lounge and have predicted better, even as the economy appears to be more dampened than when MTN or Cipla put up their offers. 

“I am confident that Airtel has learnt from MTN’s mistakes. MTN listed at a time when the economy was in turmoil,” says Julius Masaba, an investor on the USE. 

Ugandans have for long known so little on the performance of Airtel Uganda. But available data suggests that just like MTN, Airtel is a highly profitable telecom. 

According to data from Airtel’s investor presentation, the telecom’s profit after tax in the first five months to May 2023 was Shs127.8b, a decrease from Shs138.8b in May 2022.

This was, however, lower than MTN’s, which in the period to June returned a profit of Sh228b, up from Sh193.6b in the same period last year.  

Airtel blamed the decline on seasonal patterns in revenue generation, network costs and investments, which it said will give returns in the second half of 2023. 

The telecom industry is highly capital intensive and technology has made it worse. However, the returns for such investment are also enormous. 

Bharti Airtel, an Indian multinational, owns majority of Airtel Africa, under which the Ugandan unit falls. 

An IPO like Airtel’s is good music to investors and equity markets and is expected to bring new momentum in a market where trading activity is limited just to a handful of investors. 

Many companies have experienced huge declines in stock prices a few days into listing. Some take a few years. But the end is usually the same - a drop. 

For instance, MTN’s share price has dropped by Sh30 from its initial Sh200 price, two years later. 

But even this is not enough to dampen investor spirits. 

“A good price may see Airtel better MTN because it would attract more traders on our volatile market which would boost growth on the exchange,” says Masaba.

Similarly, Paul Bwiso, the USE chief executive officer, believes that given the size of Airtel’s offer, the bourse might get more liquid and increase on the momentum brought by MTN. 

“If you list more shares, it means you will have a firm investment and this will attract investors of retail, high net worth and those of long term. Definitely this would strategically place your stock well on the exchange,” he says. 

Investors have already learnt from firms that list small fractions of shares, which cause issue in the immediate and in the long term. 

For instance, in 2018, Cipla Quality Chemicals was over oversubscribed. The drug maker had floated 657 million shares, earning Shs167b from the 18 percent offer. 

Its stock was priced at Shs256.5. Since then, the share price has dropped to Sh70, wiping out at least Sh670b in investor capital.

As investors continue to recover from losses like this one, experts believe that Airtel should do it differently by having an underwriter to protect the outstanding shares in the event of an under-subscription. 

Cipla, just like MTN did not have an underwriter. Underwriting an IPO helps to evaluate risks and determine the offering price, while also working to market the IPO to potential investors. 

Investors also hope to achieve lower share price, one that is at least lower than the Sh200 MTN asked for. 

Dry spells 

Uganda’s IPO market experiences long dry spells, which impacts performance of securities and equity markets.  

It takes years to realise an IPO, yet even when it comes, it is difficult to guarantee projected performance.  

Before, Cipla put its offer in 2018, it had taken at least six years for the USE to experience an IPO. The last offer had come from power distributor Umeme in 2012. 

However, analysts believe that the performance of an IPO is always dependent on the industry in which the company operates and the state of the economy. 

Experts believe that if an industry is experiencing a slump due to failure of other businesses in that sector, the IPO will certainly fail, but if there are mergers and more investors in that sector, people will go all in for those shares.

Airtel earnings 
 
Airtel has indicated it targets to have a 95 percent dividend policy, which might spice up its stock, boosted by a high level of profitability.  

“We will target a dividend pay-out ratio of 95 percent of retained earnings or net profits after tax,” Airtel said during a media briefing on August 10.

Airtel profits after increased from Shs83.3b in 2018 to Shs139b in 2021, but declined slightly to Shs106.2b in 2022.

Investors, such Masaba believe, Airtel has already demonstrated sound investment and market strategy, which makes its IPO exciting a stock worth the money.  

[email protected]