EUR 850.00 For Business Accounts Only

Morningstar | Strong U.S. Carrier Spending Continues to Drive Excellent SBA Results, and We Project It to Persist

We like SBA’s geographic diversification, but we think its strategy to use financial leverage so aggressively provides unnecessary risk and ultimately keeps it from deepening it presence in several of its developing markets, leaving too much international concentration in Brazil. That said, we like its business and think it will continue to grow at a fast clip, albeit not to the same extent as rival American Tower.The tower business is very attractive. Wireless carriers enter long-term leases that include rent escalators (annual increases of about 3% in the U.S. and generally tied to inflation internationally), which gives the firm a highly visible and stable revenue stream, and towers have significant operating leverage. Adding tenants to existing towers and equipment upgrades by tenants both provide sharp revenue increases while adding little incremental cost. As data use grows and networks get more stretched, locating equipment on more towers and upgrading equipment are primary solutions for carriers. Consumers’ everincreasing need for mobile data results and little geographic overlap with competitors results in normalized churn of about 1%.More than 70% of SBA’s towers, and about 75% of its revenue, are in the U.S., where mobile data use has been growing 30%-40% per year and is expected to continue at a similar clip through 2021. Considering the U.S. is also the most profitable market, the company is well served by having such a presence there. However, the U.S. is a more mature market, and even with a forthcoming 5G upgrade, we don’t expect revenue growth on par with the international segment.SBA’s international exposure is limited to Canada and South America and is mostly concentrated in Brazil (13% of sales). Less mature markets leave carriers with a long runway of investment to improve network quality and coverage and results in even faster growth in consumers’ data consumption, foreshadowing bright growth prospects for SBA. However, such concentration means SBA’s international fortunes rise and fall with the Brazil. SBA has not ruled out expanding to other continents, but it is most focused on its western hemisphere markets where it has scale.