Would You Invest in a Telecom IPO?

Airtel Africa in August this year followed MTN Group and listed its Ugandan subsidiary, Airtel Uganda on the Uganda Securities Exchange (USE) to sell a 20% stake — roughly 8 billion shares — as part of its initial public offering (IPO).

These two telecommunication companies listed a percentage of the company’s stake after the Ugandan government in 2019 mandated that all telecommunication companies operating in the country must list at least 20% of their shares on the USE with the aim of increasing local ownership and boosting the national economy. The move is to ensure that the capital would be kept within the country and not be taken back to each telco’s country of origin.

H.E. President Museveni while commending this move in October of 2021 after MTN Group announced it would abide by the directive said, “Localisation is very important. It removes nationalism in the business where all people become partners.”

With these telcos selling some of their stake to the locals, we unravel the potential upsides and downsides that come with investing in these exciting IPOs, catering to both investment enthusiasts and tech fans.

As we mentioned prior, the MTN and Airtel IPOs offer Ugandans and other eligible investors an opportunity to own a stake in the telco. Despite high expectations, the results of the IPO revealed that MTN Uganda secured only 60% of its target amount, raising UGX535 billion.

This outcome sparked a wave of analysis and speculation within the investment community, making the MTN Uganda IPO a topic of great interest.

Then in 2023, Airtel Uganda undertook its IPO endeavor. Seeking to bolster its profile and drive further growth, Airtel Uganda is offering investors a chance to participate in its expansion plans. Setting the price for its IPO at UGX100 per share, Airtel Uganda aims to offer up to a 20% stake or 8 billion shares — which is half of what MTN Uganda offered.

ALSO READ: HOW TO BUY SHARES IN AIRTEL UGANDA

With an ambitious target of raising $216 million, the Airtel Uganda IPO has already generated considerable buzz and anticipation among investors.

But would you invest in a telecom IPO?

Upsides of investing in telecom IPOs

Growth Potential 

Telecom companies, like MTN Uganda and Airtel Uganda, operate in a thriving industry with immense growth potential.

As the world becomes increasingly interconnected, the demand for connectivity, data services, and emerging technologies continues to surge.

Investing in a telecom IPO allows individuals to tap into this expansive growth trajectory and potentially reap substantial rewards.

Steady revenue streams

One of the key advantages of investing in telecom IPOs is the stability of revenue streams.

Telecom companies generate consistent income through their services, including voice calls, data plans, and value-added offerings. This reliability can be appealing to investors seeking steady returns and a sense of security in their investment portfolios.

Technological innovation

Telcos are at the forefront of technological innovation, continuously pushing boundaries and driving advancements in connectivity.

Investing in a telecom IPO offers the opportunity to be part of cutting-edge developments, such as the advent of 5G technology, Internet of Things (IoT) integration, cloud computing, and more.

These innovations not only enhance the company’s competitiveness but also position investors at the forefront of transformative technological shifts.

Market penetration

Telecom companies are expanding their reach, even in emerging markets. MTN Uganda and Airtel Uganda aim to tap into the untapped potential of developing countries, where smartphone adoption and internet usage are on the rise.

By investing in these telecom IPOs, individuals can seize the opportunity to benefit from the growing market penetration and increasing customer base in these regions.

Dividend potential

Established telecom companies often distribute dividends to their shareholders, presenting an additional income stream for investors.

Dividends can be an attractive aspect, particularly for individuals seeking regular income from their investment portfolios.

Assessing the dividend policies of telecom companies like MTN Uganda and Airtel Uganda can be crucial for investors looking for long-term strategies.

Downsides of Investing in Telecom IPOs

Regulatory Challenges

The telecom industry is subject to extensive regulations and government oversight. Changes in regulatory policies, licensing requirements, or spectrum allocation can significantly impact the operations and profitability of telecom companies.

Investors must closely monitor and stay informed about regulatory developments and their potential implications on their investment decisions.

Intense Competition

The telecom sector is highly competitive, with multiple players vying for market share. Intense competition can lead to price wars, reducing profit margins for telecom companies.

Before investing in a telecom IPO, it is crucial to evaluate the company’s competitive positioning, market share, and strategies to navigate through the challenging landscape of the industry.

Capital Intensive

Building and expanding telecom networks require substantial capital investments. Telecom companies often take on significant debt to finance infrastructure development.

Investors should carefully assess the financial health, debt levels, and cash flow management of telecom IPOs to ensure sustainable growth and profitability in the long run.

Technological Disruption

While technological advancements can be an upside, they can also disrupt the telecom industry. Disruptive technologies like Over-The-Top (OTT) services, which offer voice and messaging services over the Internet, pose challenges to traditional telecom revenue streams.

Investors should consider the ability of companies like MTN Uganda and Airtel Uganda to adapt and innovate in the face of technological disruptions to safeguard their investments.

In conclusion, investing in a telecom IPO, such as MTN Uganda or Airtel Uganda, holds the promise of exciting opportunities for both investment enthusiasts and tech fans.

The telecommunication industry’s growth potential, steady revenue streams, technological innovation, market penetration, and dividend potential are alluring aspects. However, it is crucial to remain aware of the regulatory challenges, intense competition, capital-intensive nature, and technological disruptions that come with investing in this vibrant sector.

Thorough research, due diligence, and a long-term investment perspective are essential when considering a telecom IPO.

ALSO READ: MTN UGANDA MARKS ITS FIRST ANNIVERSARY AS A PUBLICLY LISTED COMPANY