Cellnex Telecom : Status quo on the shareholding structure

>Status-quo on Cellnex’ shareholding structure - While there was potentially the prospect of a change of the ownership structure as part of the Abertis takeover, the latter’s 34% stake in Cellnex will be in large part (29.9%) sold to Atlantia and then transferred to Edizione should the joint takeover bid of ACS/Hochtief/Atlantia on Abertis succeed. All in all, Cellnex will continue to have a core shareholder with a 30-35% stake in the company and the scenario of an acquisition of Cellnex by an investment-grade US peer (American Tower or Crown castle) has not materialized, at least in the short term.Cellnex will keep on consolidating the European tower market - Cellnex has been vocal about its external growth ambitions and there are many opportunities to consolidate the tower infrastructure market in Europe. The company previously said that it could increase its net leverage towards 6.5x in case of an attractive deal (vs. 5.6x at end-March 2018). We believe that such a level would potentially lead to a temporary downgrade of the BBB-/negative rating at Fitch and a rating cut or an outlook revision at S&P. Hence we revise our credit opinion to Negative (vs. Stable).We downgrade our recommendation on the straight bonds to Reduce (vs. Neutral 22, Buy 24 & 25), and assign a Neutral recommendation on the 2026 CB - We revise our recommendation on the straight bonds to Reduce as we consider that the spreads do not sufficiently compensate for the acquisition risk. For instance, the z-spread of the 2024 notes (Ytw of 2.0%, z+159 bp) offers little premium compared with the average spread of BB+ rated bonds with a similar maturity (151 bp).We like the company’s profile, including its large backlog (€ 16bn or 20x sales), its track record of integrating new assets and improving margins, its sound management and its natural hedge against inflation and interest rate increases. However, we believe there could be better entry points after potentially large M&A transactions would be announced.We also assign a Neutral recommendation on the convertible notes due 2026 that were issued in January (please see on page 7).