The golden goose that Airtel hid from its investors 

When Airtel announced its IPO in August 2023, it argued it was the best offer.  

The numbers, largely generated from voice and data, as indicated in the prospectus, looked juicy and had propped up both Airtel’s earnings and profits in the five years to 2023. 

However, Airtel, compared to its leading competitor in the industry, MTN, at the time of floating the 20 percent offer, indicated it had excluded the mobile money business from the initial public offering, reasoning that investors would get good returns from the telecom division, of which, voice and data are key revenue streams, generating Shs899b and Shs775b, respectively as of December 2023.   

However, as it would turn out later, voice and data were not sufficient to achieve the targeted Shs457b profit, given that Airtel reported an 8.83 percent decline in profits to Shs296b from Shs326b, while the dividend pay-out of Shs294b was way below the projected Shs513b, thus returning a dividend yield of just 7.4 percent.

Yet, when Airtel published results of its mobile money unit - Airtel Mobile Commerce - it showed a largely profitable company that investors have no opportunity to share into, while at the same time, it continues to feed off the listed company through inter-company loans. 

For instance, in details contained in the Airtel 2023 annual report, Airtel Mobile Commerce – the mobile money unit – entered into an agreement to borrow Shs75b from Airtel - the telecom unit - to fund its business plan. 

Of the Shs75b, at least Shs40b, payable later this year, had been disbursed by December 2023. 

Thus, market analysts, who requested anonymity to speak freely, argue that Airtel could have hid the “golden goose” from its investors, resulting in less activity on its counter at the Uganda Securities Exchange and a fall in the value of its stock from Shs100 in November to Shs79.5 due. 

Market details suggest an oversupply of shares by investors seeking to exit the stock.  

Some 4,610 investors purchased into Airtel and had expected a dividend of Shs22 per share, but only got Shs7.02.

The low return could be due to different factors, but if Airtel Mobile Commerce had been part of the listed entity, perhaps the story would have been different. 

In details released early this week, Airtel Mobile Commerce returned the largest profit in the mobile money business, beating its closest rival, MTN.

Before, it went public, Airtel’s financials had largely remained a company secret, but current dynamics demand that, just like MTN, it publishes its financials for both the telecom and mobile money units. 

Therefore, available data indicate that MTN and Airtel operate exceptionally profitable mobile money units that generate more revenue than many commercial banks. 

So, for one section of investors - MTN - to share into such profits, and another – Airtel – not to, tells the story of why the Airtel share is offering low returns than projected. 

Airtel convinced at least 4,610 investors to buy its stock without the mobile money business. However, few could have understood then what they were missing. 

The National Payment Systems Act separates telecom from mobile money operations, which Airtel could have used to its advantage, given that Airtel Mobile Commerce, just like Airtel Uganda – the telecommunications business, is owned by Airtel Africa, unlike MTN Mobile Money, which is listed as a subsidiary of MTN Uganda.

The mobile money units are regulated by Bank of Uganda, while the listed telecoms and their subsidiaries, are governed under CMA regulations, but largely regulated by Uganda Communications Commission. 

In details published early this week, Airtel Mobile Commerce returned a healthy profit position, recording at least Shs47b, more than what MTN Mobile Money recorded for the period ended December 2023.

In the period under review, Airtel Mobile Commerce reported Shs249.9b in net profits, compared to Shs202.9b recorded by MTN Mobile Money. 

The two units had seen an increase in net profits from the previous year of Shs218.6b for Airtel Mobile Commerce and Shs162.1b for MTN Mobile Money.

The revenue was largely generated from financial technology, through which customers use their phones to transfer, save money, and purchase different products and services. 

They have also created credit products, through which, according to their financials, at least lent out a combined Shs610b to different users in 2023.  

However, MTN carries the largest share, having lent out at least Shs569b in the year, an increment of 103.4 percent.   

Mobile money continues to create an alternative platform for financial inclusion, which has reduced the gap between the banked and unbanked. 

Many people, who live in places that have low access to traditional banking infrastructure, have found mobile money sufficient and are now able to transfer money, borrow and access other financial products. 

As of June 2023, there were approximately 39.4 million mobile money registered lines, having grown from 38.1 million at the end of March 2023, according to data from Uganda Communications Commission. 

In contrast, only about four million people, or 10 percent, have bank accounts, according to Uganda Bankers Association. 

With the potential that mobile money units carry, they have become big businesses and can only grow further in the years to come. 

Revenue position 

Details in their financial statements indicate that in terms of income, MTN Mobile Money generated more revenue in 2023 than Airtel Mobile Commerce. 

For instance, in the period under review, MTN Mobile Money earned net revenue of Shs784.4b, which was Shs47.3b higher than Airtel Money Commerce’s Shs737.1b.

However, the two telecoms equally spend heavily on marketing, for which Airtel spent Shs318.4b compared to MTN’s Shs342b. 

Other expenses included administrative and general costs, where Airtel spent Shs42.4b, while MTN spent Shs51.2b on operations, and Shs36.7b on direct network costs.

The figures above indicate that the two mobile money units spent a combined Shs660b on marketing and sales, a key driver of product preposition and positioning. 

Thus, analysts indicate that the battle line of the mobile money space is likely to heat up in the coming years with concentration placed on credit access, among other financial services. 

MTN Mobile Money has already indicated that it is leveraging on the push for the attainment of a cashless economy to lend out at least Shs1 trillion by the end of this year.  

David Birungi, the Airtel public relations manager, says that the largest competitor of mobile money is cash, which means that telecoms have to spend heavily on marketing to shift user focus to cashless transactions.  

Investor interest 

With mobile money now seeming an important revenue stream, many investors are positioning themselves to tap into the lucrative business.

Early this year, MTN Group president and chief executive officer Ralph Mupita, said MTN Africa values its Fintech division, MTN Mobile Money (Africa), at $5.2b with 72.5 million active users.

MTN Group has even sold a stake to Mastercard for $200m and plans to sell 30 percent of the business before the close of this year.   

For $550m, Airtel Money’s parent company, Airtel Africa, a London-listed company, also gave up a 25.77 percent share in its collective mobile money business in 2022. 

This year reports note that it is eyeing another IPO with a valuation of $4b.

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