We remain Neutral on Cellnex (€31 target) and Inwit (€11.8 target), but the sale by Cellnex of a 49% stake in its Nordic assets to Stonepeak at 24x is certainly an attractive datapoint, as we had been worried that activity in the private tower market in Europe had been slowing.
This morning Vodafone reported that they had only sold a further €500m stake in their Vantage Towers holding company to a consortium of infrastructure investors, out of €1.8bn targeted. The stake is being sold at a 22x EBITDA valuation – below recent transaction benchmarks – implying that private tower valuations may be starting to cool.
Vantage Towers Q3 results are reasonably solid with an increase in the guidance to the upper half of the range, but progress on BTS buildout or incremental 1&1 tenancies in Germany still seems to be slow. However, given the bid, these are likely to have little immediate bearing on the share price. The results of the tender offer are due to be published tomorrow. In the note we run through next steps on the tender process and the detailed trends from the results.
Given the bid situation, Vantage Towers results are arguably slightly moot, but nonetheless, although all financial guidance has been reiterated, the pick-up in tenancy growth remains slower than expected as the 1&1 contract and German white-spot build remains slow to ramp up. We believe the €32/ share offer reflects good value for Vantage minority shareholders given where current bond yields are.
Tower names in Europe are sensitive to rises in real yields – and since we last updated our cost of capital assumptions for the tower names in April, real rates have increased by 200-250bp, so we reduce our fair value for the tower names by 25%, and pull Inwit back to Neutral.
Vantage Towers has reported a steady set of Q1 results, with FY financial guidance re-iterated, but overall tenancy growth in the quarter was below expectations with the BTS programme in Germany continuing to be lacklustre as previously flagged.
As part of our High Yield quarterly product, we publish our forecasts for those high yield names for which we have full coverage (close to 85% of the sector), and Q1 22 country snapshots for all the high yield names to provide context and support ahead of earnings.
Bond yields have been clearly rising rapidly, but for European tower names, we have long argued that real rates are more important than nominal rates given MSA structures. Despite all the headlines, long-term inflation expectations have actually fallen recently, implying an even higher increase in real yields.
Reuters is reporting that Brookfield and GIP have approached Vodafone to make a majority offer for Vantage Towers. This could be a significant move and we assess the valuation and balance sheet implications for Vodafone and Vantage Towers.
Vantage Towers has reported Q3 revenues, which were marginally ahead of expectations and all guidance has been re-iterated. Solid progress is also being made on the lease buyout program which should help to support future cash generation.
1&1 and United Internet have taken a significant step forward with their mobile project and shown a real sign of commitment to the network build with a significant ramp-up in capex, which we benchmark against Rakuten’s spending. They have also announced a larger tower deal than we were expecting with Vantage Towers, which is positive for Vantage.
Following Q3 earnings season, we revisit key themes for the tower names, which have generally performed well this year, with the impact of rising inflation offsetting the potential drag from rising bond yields. M&A activity has been quieter than usual, but expectations of future M&A have been increasing and now swirl around all names. We revisit the Inwit synergy case to show what this might mean for Vantage Towers, and we revisit our broader thesis on the EU tower names.
Vantage Towers has reported reasonable results, and has increased its RFCF guidance by 4% reflecting lower tax and interest payments. Non-committed tenancies continue to grow steadily albeit slightly slower than we would have liked to see and higher lease costs leaves more work to be done in H2 in order to hit market EBITDAaL expectations for this year.
The rare combination of rising inflation and falling bond yields has been a powerful cocktail for European tower names. We therefore revisit the sector thesis and incorporate updated inflation estimates, but see no reason to change underlying tenancy growth which remains modest and still leads us to believe the longer-term consensus outlook could be too optimistic.
Full Article at IIR has reaffirmed its Recommended rating for PIA after undertaking a review post the appointment of a new Portfolio Manager, Harding Loevner. The full report can be found on the IIR website. On 26 July 2021, Pengana International Equities Limited (PIA) announced a fully franked dividend of 1.35 cents per share for the June quarter. This represents an 8% increase on the March quarter dividend and takes the total dividends declared for FY21 of 5.1 cents per share, fully franked....
Vantage has reported their Q1 trading statement, which is just for revenues and tenancies, with lower growth rates in both than we were expecting. All FY22 guidance though has been reiterated, but it does seem based on the Q1 data that there is a lot of work to be done to achieve these targets, and this will seem to depend on the pace of the white-spot buildout in Germany.
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