Airtel Africa Shares (LON:AAF) Upgraded to Buy, Projecting Further Upside

Airtel Africa shares (AAF.L) are back on the move higher today, with AAF once again breaking 220p on gains of more than 2% after a couple of days of pause.

Today's move has come with HSBC upgrading the stock to ‘Buy' from ‘Hold', setting a price target of 260p, signaling potential for continued growth. This upgrade follows a period of robust performance, with the share price already appreciating by 94% over the past 12 months and showing an impressive year-to-date increase of 84%.

The HSBC upgrade reflects increasing confidence in Airtel Africa's strategic initiatives and overall financial stability, influencing market sentiment. The new price target of 260p indicates an anticipated continuation of the upward trend. Such an endorsement is likely to strengthen market confidence into the stock.

The company's strong financial performance in the first quarter of fiscal year 2025 has further fueled positive sentiment. Airtel Africa reported a fivefold increase in net profit, reaching $156 million, a substantial leap from the $31 million recorded in the same period last year. This surge was primarily driven by a 24.9% year-on-year revenue growth, which amounted to $1.41 billion.

This revenue increase can be attributed to strategic tariff adjustments implemented in Nigeria and strong operational performance in Francophone Africa. Furthermore, the company's operating margin improved to 48% from 45.3% a year earlier, showcasing enhanced operational efficiency and profitability.

Airtel Africa has also been actively managing its capital structure through share buyback programs, aimed at returning value to shareholders. In December 2024, the company initiated a $100 million share buyback program, successfully purchasing 26.3 million shares by April 2025.

Following this, a second tranche was commenced in May 2025, with plans to repurchase an additional $55 million worth of shares by November 2025. As of June 2025, 7.1 million shares had already been repurchased under this second tranche, reflecting the company's commitment to enhancing shareholder value.

Despite these positive indicators, Airtel Africa faces notable challenges, particularly stemming from foreign exchange risks. The devaluation of the Nigerian naira has had a tangible impact on profits, with the currency depreciating nearly 70% against the US dollar over the past two years.

This currency volatility poses a significant risk to the company's financial performance. Additionally, Airtel Africa's net debt has increased by 7.5% to $5.3 billion, influenced by higher fuel costs and the adverse effects of currency devaluations. These factors necessitate careful monitoring and strategic financial management to mitigate potential negative impacts on profitability and overall financial health.

Analyst perspectives on Airtel Africa's stock present a mixed outlook. While HSBC's upgrade to ‘Buy' with a 260p price target demonstrates considerable optimism, other analysts have offered varying price targets.

The latest re-test of 220p has proved difficult to hold, with the shares pulling back from the high of the day (222.60p). Sentiment is clearly bullish over at HSBC, and markets are following suit with a new high. There could yet be further resistance before any break to the upside (should it occur), so watch these levels carefully and keep an eye on risk.