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Higher bond yields, fears of an AI bubble, and increased geopolitical uncertainty are just three of the factors that are leading to speculation that a stock market crash might be on its way. Unfortunately, there’s nothing investors can do about it.
However, while devastating for the vast majority, it could also bring about an opportunity to pick up a bargain or two. That’s why I think it’s a good idea to try and have some uninvested cash in a portfolio, just in case…
A scary time
I usually approach the month of Halloween with trepidation. Not only do the ghosts and witches scare me but it’s an uncomfortable fact that three of the five biggest one-day falls on the FTSE 100 have taken place in October. The worst was in 1987 — Black Monday — when the Footsie plummeted over 12%.
However, ignoring these dramatic falls, October’s historically been an unspectacular month. In fact, it ranks sixth for average monthly FTSE 100 returns.
Of course, I have no idea whether the stock market will crash this month. However, as part of my strategy of expecting the best but preparing for the worst, I have a little spare cash ready to invest.
And should disaster strike, one of the stocks on my shopping list is Airtel Africa (LSE:AAF).
Why?
The African telecoms group’s been in the headlines recently following a decision to separately list its mobile money business. Airtel Money offers a financial services platform accessed through a mobile phone. It currently has 53m active monthly users in 13 African markets.
On a continent with limited banking infrastructure, particularly in rural areas, it enables Africans to access financial products including a virtual Mastercard for e-commerce transactions. Its customer base has grown at an average of 20% a year since 2018.
Previously, the group was hoping to achieve a valuation of $10bn. Reports suggest this has been scaled back to $8bn-$9bn. Whatever the final figure, Airtel Africa will retain control with only around 10% of Airtel Money’s shares being in free float.
However, a closer look at its accounts suggests the group as a whole is significantly undervalued.
The sum of the parts
For the year ended 31 March, the money business reported EBITDA (earnings before interest, tax, depreciation, and amortisation) of $689m. The rest of the group contributed $2.473bn. If Airtel Money achieves a valuation of $8bn, it would trade at 11.6 times EBITDA. The remainder of Airtel Africa would be trading at around 2.8 times earnings (at 2 October). That’s cheap.
But there are challenges including volatile currencies and possible political instability. Also, telecoms infrastructure is expensive so it’s important to keep an eye on debt levels. Interest rate rises would also affect its bottom line.
My view
Personally, I think both sides of the business have huge potential. In Airtel Money’s territories, only 20%-25% of adults have a bank account. And a combination of rapid population and GDP growth over the next decade is likely to see the demand for mobile phones rise significantly.
That’s why I think Airtel Africa’s a stock to consider. And should predictions of an imminent stock market crash prove correct, I will be ready to bag myself even more of a bargain. But it’s not the only growth opportunity that’s caught my attention…
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James Beard owns shares in Airtel Africa plc.
This story originally appeared on Motley Fool
