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The FTSE 100 stock I’ve been watching most closely this year isn’t one of the usual names in the headlines. But it’s been quietly beating the biggest US growth stars. Can it continue to smash them?
Investers have been dazzled by mighty US tech names such as chip maker Nvidia. Its shares are up a mind-boggling 1,238% over five years, but the pace has slowed as it’s now a $4.4trn giant with a toppy-looking price-to-earnings (P/E) ratio of 45.
Airtel Africa flies under the radar
I hold Nvidia but I’m in no rush to buy more at today’s level, so I’ve been looking across the market for fresher opportunities. That led me to Airtel Africa (LSE: AAF), a stock that’s soared 205% in the last year, almost seven times faster than Nvidia’s 30%.
Over five years it can’t match the US tech rocket, but a gain of 278% is still eye-catching. It’s a vital reminder that exciting growth stories can be found on the FTSE 100 and FTSE 250, not just in Silicon Valley. I could just as easily be highlitghting FTSE 100-listed gold miner Fresnillo, which is up 321% in the last year, Endeavour Mining (up 125%), and Babcock International Group (up 120%). The index has more life in it than many assume.
Currency risk
Airtel Africa is often overlooked, partly because its shares had been volatile. The 15-year slide in the Nigerian naira squeezed revenues when converted back into sterling. That seems to have steadied recently.
Latest results, published on 24 July, showed strong momentum. Revenue for the quarter to 30 June jumped 24.9% in constant currency to $1.42bn, driven by demand for data and mobile money services. Profit after tax quintupled from $31m to $156m, helped by a $22m gain from the appreciation of the Central African franc. Currency swings can work both ways, although that’s a risk I would rather do without.
Airtel Africa now serves around 170m customers, which shows the scale of the opportunity.
More expensive than Nvidia!
Telecoms is a costly business though and this one’s no different. Airtel Africa expects to spend between $725m and $750m on capex this year. Net debt had climbed to $5.27bn when I looked at the stock in February, but has since fallen back to $3.73bn by 30 June. The board has even found room for modest share buybacks. There are dividends too. The trailing 1.54% yield is modest but that reflects the soaring share price more than anything else.
This is an exciting growth story, but I’m cautious after such a rapid climb. Airtel Africa is now trading on a P/E of about 70, making it even pricier than Nvidia. At that level I’m holding fire. Any investor considering buying today must keep that valuation firmly in mind.
What it has done is remind me that despite the gloom enveloping the UK, the FTSE 100 and FTSE 250 are packed with potential. I’m hunting for the next big growth monster rather than the last one. I can see plenty of opportunities out there.
