EUR 100.00 For Business Accounts Only

CELLNEX: ACQUIRES HUTCHISON'S TOWERS (ANÁLISIS BANCO SABADELL)

The company has just announced the acquisition of Hutchison’s towers in Europe for €~10 Bn EV (38% of CLNX’ market cap), €~8.6 Bn of which will be paid in cash. The remaining €~1.4 Bn will be paid in newly-issued shares in Cellnex (meaning that Hutchison would hold ~5% of the share capital).
Initially, the acquisition will include ~24,600 towers (33.4% of CLNX’ total as of today) in Italy, United Kingdom, Sweden, Austria and Denmark, and the operation will be structured in 6 separate acquisitions (1 by region), a process that will be completed by 2022. In Italy, the company will now have 24,500 towers (vs. 15,000 currently), in the UK 14,700 (vs. 8,000), in Ireland 2,300 (vs. 1,000), and will gain a presence in three countries: Sweden, with 5,200 towers, Denmark, with 1,900, and Austria, with 4,900. The contract will have a duration of 15 years (after which it can be extended by another 15 years, and subsequently, by consecutive periods of 5 years) and is linked to inflation.
Additionally, the agreement includes a commitment to invest €~1.4 Bn in the deployment of 5,250 towers (6.8% of CLNX’ total until 2030), as well as a number of initiatives in Small Cells and DAS.
In year one (expected for 2022), the saes contribution will total € 780 M in sales (39.2% of CLNX’ total sales), € 640 M in EBITDA post IFRS16 (44.1% of CLNX’ EBITDA) and € 320 M of RLFCF (41% of CLNX’ RLFCF), whereas at cruising speed (2030), the contribution will amount to € 1.15 Bn in sales, € 970 M in EBITDA post IFRS16 (1.5x the current run-rate) and € 620 M of RLFCF. The backlog will increase by € 33 Bn to € 86 Bn (+66%). Hutchison’s EBITDA margin at cruising speed stands at 84.3% (vs. ~73% for CLNX), and the EBITDA/RLFCF conversion ratio is 63.9% (vs. ~55% for CLNX currently).
Thus, the financial data are positive, given that the deal’s EV/EBITDA ratio post IFRS (2030) stands at 11.75x, vs. CLNX’ current trading levels of ~21x, and vs. the latest transaction in Poland (11.9x; vs. ~11.4x in the last seven acquisitions).
Our opinion of the deal remains the same: The reading of the agreement is positive, as the asset is a perfect strategic fit for CLNX and the deal will be transformational (up to a total of ~29,800 towers will be added in Europe, vs. CLNX’s ~73,000), with substantial synergies (due to the overlap in some regions like Italy, the UK and Ireland). As for Hutchison’s stake in CLNX’s share capital, it will be low enough to remain neutral in the company.
As for leverage, NFD would rise to €~13 Bn (~3x current NFD), and the gearing ratio in 2022 would stand at around 6x with this deal (although this number would increase after introducing Hutchison’s leasings). Thus, CLNX would use up practically 100% of its current resources following the recent € 4 Bn rights issue and the latest tower acquisition in Poland, although given the timing of the closing, we would not rule out the possibility of another medium/small-sized move.
Initially, the deal has hardly any impact on our valuation, as we already included a wave of new purchases totaling €~13 Bn. The additional upside would once again come from making new acquisitions (and the associated rights issues), which in any event is our base-case scenario in CLNX.
Conference call at 18.30 (CET).