Author Topic: HTWS:GB - Helios Towers  (Read 6803 times)

Spekulatius

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Re: HTWS:GB - Helios Towers
« Reply #10 on: December 12, 2020, 10:03:43 AM »
The thing is, as someone else pointed out, Starlink needs a dish - a big receiver. Africa is a special telco market in that it's dominantly mobile, very few landlines.. Unless someone fits a dish in a 10 dollar smartphone (and I haven't done the research, is it possible?), I don't see how Starlink is a threat. Perhaps AMT, T and Charter has to worry, but I don't see why an African tower co would.

It is possible that years from now, the dish shrinks to an antenna in a phone. Thatís a bit my beef with the tower business, is this really like an annuity or are the tower far less valuable 20 years from now? With a ~4% cash yield on assets, you need a long asset live (>30 years)  to make this business a good one. Who know what the technology looks like 30 years from now.

Itís different when you own RE - you can rebuild and reconfigure it and it likely still be worth something - most likely much more than it is right now due to inflation.

Technology however works differently and often deflationary, which is a threat for the tower business.
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kab60

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Re: HTWS:GB - Helios Towers
« Reply #11 on: December 12, 2020, 12:32:49 PM »
Just wanted to add that management incentives look fine. LTIP is based on 1/3 relative TSR, 1/3 ebitda per share and 1/3 ROIC. I've seen worse.

What bothers me a bit is their high interest costs. They issued 750m during the summer @ 7 pct. They recently added another 225m above par so effective yield like 5,6 pct. which is better and arguably good considering the weak nations they operate in, but it means they're at close to 1b of gross debt @ 7 pct. Net debt is much lower, they have 466m in cash of which 189m will be used to fund the Senegal acquisition of 1.200 towers that'll add 19m of ebitda. But it's just pretty expensive financing and makes me wonder whether it sucks to be a midsized tower company. American Tower issues ten year bonds below 2 pct. Every 100 bps saved is a massive boost to FCF considering the leverage.

As for Helios Towers the interest on their gross debt consumes almost half of their 177m in so called Last Quarter Annualised Portfolio Free Cash Flow which only increased 5 pct. versus 2019. It means they don't really generate all that much free cash flow (before growth capex).

But I suppose herein also lies the opportunity. Because keeping interest costs steady, any uptick in ebitda should mostly be converted to FCF, and historically they've shown good organic growth (escalators, increased cells on towers, margin expansion). A combination of increasing cash flows, less concentration risk down the line (when they expand to new countries) and more income pegged to USD or euro should lower finance costs further down the line. But those 7 pct. notes they issued during the summer are a 'lil annoying. Their much higher cost of capital makes it somewhat of a bummer to compete with AMT for acquisitions, but I suppose some of the deals Helios are looking at are just too minor for AMT to even bother.

According to analysts Helios trades at a bit less than 10x2021 ebitda. AMT reportedly paid 12xebitda for Eaton Towers but supposedly closer to 13,2x. No opinon as to whether that's a fair comp, but there's some data here: https://www.towerxchange.com/deal-analysis-american-tower-to-acquire-eaton-towers/

I think the biggest risk here are Tanazania, the 33 pct of income not pegged to USD or Euro and them buying a turd (or M&A not materializing). Appreciate the input on Starlink, but considering where AMT trades I don't think that is an overhang on Helios.
« Last Edit: December 12, 2020, 11:04:08 PM by kab60 »

SharperDingaan

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Re: HTWS:GB - Helios Towers
« Reply #12 on: December 12, 2020, 01:27:12 PM »
Hate to tell you this, but all you need is a fractal antenna and a parabolic reflector. Most cellphones already use a fractal antenna.
https://www.instructables.com/Making-a-3D-Printed-Fractal-Antenna-with-a-Parabol/

Today Starlink is not really a practical solution for general use, but neither was the first Samsung cellphone.
However, today's Samsung cellphone? entirely different. Musk is essentially doing the same thing.

SD
 








kab60

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Re: HTWS:GB - Helios Towers
« Reply #13 on: December 15, 2020, 01:22:55 AM »

Spekulatius

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Re: HTWS:GB - Helios Towers
« Reply #14 on: December 15, 2020, 04:02:23 AM »
Just wanted to add that management incentives look fine. LTIP is based on 1/3 relative TSR, 1/3 ebitda per share and 1/3 ROIC. I've seen worse.

What bothers me a bit is their high interest costs. They issued 750m during the summer @ 7 pct. They recently added another 225m above par so effective yield like 5,6 pct. which is better and arguably good considering the weak nations they operate in, but it means they're at close to 1b of gross debt @ 7 pct. Net debt is much lower, they have 466m in cash of which 189m will be used to fund the Senegal acquisition of 1.200 towers that'll add 19m of ebitda. But it's just pretty expensive financing and makes me wonder whether it sucks to be a midsized tower company. American Tower issues ten year bonds below 2 pct. Every 100 bps saved is a massive boost to FCF considering the leverage.

As for Helios Towers the interest on their gross debt consumes almost half of their 177m in so called Last Quarter Annualised Portfolio Free Cash Flow which only increased 5 pct. versus 2019. It means they don't really generate all that much free cash flow (before growth capex).

But I suppose herein also lies the opportunity. Because keeping interest costs steady, any uptick in ebitda should mostly be converted to FCF, and historically they've shown good organic growth (escalators, increased cells on towers, margin expansion). A combination of increasing cash flows, less concentration risk down the line (when they expand to new countries) and more income pegged to USD or euro should lower finance costs further down the line. But those 7 pct. notes they issued during the summer are a 'lil annoying. Their much higher cost of capital makes it somewhat of a bummer to compete with AMT for acquisitions, but I suppose some of the deals Helios are looking at are just too minor for AMT to even bother.

According to analysts Helios trades at a bit less than 10x2021 ebitda. AMT reportedly paid 12xebitda for Eaton Towers but supposedly closer to 13,2x. No opinon as to whether that's a fair comp, but there's some data here: https://www.towerxchange.com/deal-analysis-american-tower-to-acquire-eaton-towers/

I think the biggest risk here are Tanazania, the 33 pct of income not pegged to USD or Euro and them buying a turd (or M&A not materializing). Appreciate the input on Starlink, but considering where AMT trades I don't think that is an overhang on Helios.

I would be careful assuming that currency pegs remain in place. They can only remain in place if the underlying economy and fiscal policy (inflation) performs similar to the currency it is pegged to. If not, the currency peg will blow up, it is just a question when. The high interest rates that Helios is paying May be an indication of the credit risk that bond holders are seeing. Business like this often lever up in low interest rate currencies while having cash flows in volatile emerging market currencies. Thatís some inherent risk that on needs to be aware of.
Life is too short for cheap beer and wine.

brianr27

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Re: HTWS:GB - Helios Towers
« Reply #15 on: December 15, 2020, 07:05:24 AM »
Regarding the point about 6G/satellites making towers obsolete: according to AMT's 10K, 2G and 3G are still being deployed in international markets. So while 5G/6G will eleviate some of the bottleneck with 2G/3G/4G towers, towers will likely be around for a very long time. Towers pricing power may diminish a little but it seems more like a road network where new traffic continually grows to fill all available routes.

SharperDingaan

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Re: HTWS:GB - Helios Towers
« Reply #16 on: December 15, 2020, 07:31:12 AM »
The issue is not towers going away, it is their becoming obsolete sooner than thought.
Both feet, and the horse and buggy work perfectly well as transportation - but motor cars do it a whole lot better.

12,000 satellites (so far), and they've just received very big grants to beam internet to rural America - despite industry opposition.
Once the infrastructure is up (& paid for), adding satellites for African use will be very cheap. Sure it will take some time, but it is going to happen, and it is going to start biting 5-10 yrs out. Long term, if the towers are not to eventually become stranded assets they are going to have to add a better/different value-add over time.

https://www.internetgovernancehub.blog/2020/12/09/fcc-announces-billions-of-dollars-in-awards-to-provide-rural-areas-with-broadband-access/

SD


« Last Edit: December 15, 2020, 07:32:55 AM by SharperDingaan »

cmlber

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Re: HTWS:GB - Helios Towers
« Reply #17 on: December 15, 2020, 09:15:46 AM »
The issue is not towers going away, it is their becoming obsolete sooner than thought.
Both feet, and the horse and buggy work perfectly well as transportation - but motor cars do it a whole lot better.

12,000 satellites (so far), and they've just received very big grants to beam internet to rural America - despite industry opposition.
Once the infrastructure is up (& paid for), adding satellites for African use will be very cheap.
SD

I think the bigger issue, rather than satellites which might be a threat in Africa but aren't in developed economies, is the ease of putting a tower next to another tower.  In the U.S., it's virtually impossible to put a cell tower in close enough proximity to an existing tower to create a true substitute for that radius.  I don't know what countries Helios operates in, but I imagine the regulatory barriers don't exist in nearly the same way.  Your tenants can credibly threaten to put their own tower 20 feet away, so the pricing power isn't the same.

marshhill

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Re: HTWS:GB - Helios Towers
« Reply #18 on: December 15, 2020, 11:44:03 AM »
The issue is not towers going away, it is their becoming obsolete sooner than thought.
Both feet, and the horse and buggy work perfectly well as transportation - but motor cars do it a whole lot better.

12,000 satellites (so far), and they've just received very big grants to beam internet to rural America - despite industry opposition.
Once the infrastructure is up (& paid for), adding satellites for African use will be very cheap.
SD

I think the bigger issue, rather than satellites which might be a threat in Africa but aren't in developed economies, is the ease of putting a tower next to another tower.  In the U.S., it's virtually impossible to put a cell tower in close enough proximity to an existing tower to create a true substitute for that radius.  I don't know what countries Helios operates in, but I imagine the regulatory barriers don't exist in nearly the same way.  Your tenants can credibly threaten to put their own tower 20 feet away, so the pricing power isn't the same.

IMO the (long-term non-cancellable) structure of tower contracts and the economics of towers, in general, dampens that concern. I believe most international contracts are non-cancelable but please lmk if this is not true.

If anyone were to build a new tower to compete with an existing one, it would be a tower co instead of a tel co. I don't think any profit-minded tower co would opt into a situation where all excess profits are guaranteed to be competed away. Why sell lemonade next to your stand when I could park mine a couple of blocks away :-).

Also, assuming more than one tenant, the incumbent has operating leverage over the entrant and, as a result, more pricing power.

Theoretically, if contracts were cancellable, the most plausible way an entrant could beat out the incumbent is by having a much lower cost of capital i.e., AMT.

brianr27

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Re: HTWS:GB - Helios Towers
« Reply #19 on: December 15, 2020, 12:07:09 PM »
From what I understand, Starlinks satellites orbit at an altitude of 341 miles with 20-40 milliseconds of latency. That may not make for a great experience for certain applications, self-driving cars for example where milliseconds could mean life and death.

It's better than 4G latency at 200ms but worse than 5G latency is 1ms. Will customers get excited about a technology that offers lower performance than they will be accustomed to getting on 5G?