Cellnex gets on a roller coaster

Cellnex is in the eye of the hurricane. On January 11, the company announced that its CEO, Tobías Martínez, will leave his post next June. With him, the telecommunications tower operator has led an intense story of growth based on acquisitions and capital increases. The executive’s resignation has also opened a period of strong volatility on the stock market. The shares have been heated amid rumors (not confirmed) of a possible takeover by the American groups American Tower (AMT) and Brookfield.

Despite the heat of the price —so far this year the titles have risen 16%—, it is difficult for any courtship to take hold. We are not talking about small game. The value of Cellnex on the stock market, the company’s debt and the premium that they should pay to shareholders would require around 50,000 million euros, according to calculations by the shareholders consulted. Barclays echoed this possibility: “Given the recent change in strategy and the appointment of a new CEO is still pending, we believe that Cellnex may be open to other strategic alternatives, including acquisition.” And they add: “Cellnex’s portfolio has a limited overlap with AMT outside of Spain. Regulatory problems could arise in France, where Cellnex has a large presence, but AMT’s French portfolio is relatively small and the US one could probably remedy regulatory problems through local divestments.

Cellnex downplays the takeover rumors and recalls that these have been a constant since its IPO in 2015. “No one has approached us with any offer, nor have we given any defense mandate in this regard. In addition, this type of operation must pass through the filter of the Council of Ministers”, underlined the company sources consulted.

Cellnex Telecom has its origins in Autopistas Concesionaria Española (Acesa) —in the business orbit of La Caixa— and its foray into telecommunications infrastructures, from the road world. First, it acquired the public company Tradia Telecom and in 2003 it took over the state public company Retevisión, which offered this same service to RTVE, Mediaset, A3 media and the regional channels. Acesa was renamed Abertis and reinforced this commitment with the management of the so-called TETRA networks (Trans European Trunked Radio) in Spain, which are critical communications for emergencies (police, army, maritime rescue…).

This business model by which television and radio stations paid an operator to broadcast their signal, still wanted to take Abertis Telecom to the world of mobile telephony where the operators (Telefónica, Vodafone, Orange…) shared their broadcasting towers, but this time for voice and data. In 2014, Abertis took the first step by acquiring 4,500 mobile phone towers from Telefónica. It currently has 107,000 cell phone towers spread across 12 European countries and the commitment to acquire another 25,000 towers by 2030. In those eight years of frenetic purchases, it has made an investment of 40,000 million euros that places Cellnex as the main European infrastructure operator of wireless telecommunications.

That 2014 was the decisive year to separate the telecommunications business from Abertis and create Cellnex Telecom, which would launch on the Stock Market in May 2015. The company was valued on the stock market at its launch at 2,235 million euros and almost eight years then its market capitalization reached 25,300 million euros, occupying seventh place among the values ​​of the Ibex 35. An evolution of value in parallel with the progress of its income, which in 2014 rose to 450 million euros and that in 2022 They will end up around 3,500 million, according to the company. Since its inception, the business has turned around and now radio and television account for less than 10% of its turnover, while mobile telephony exceeds 90%.

This meteoric evolution of its figures has not been transferred to its net profit: Cellnex will close this year again with losses. The company does not anticipate the year in which the profit will jump from red to black, but they expect 2024 to close “with a positive free cash-flow (profit plus amortizations) that leads to a new shareholder remuneration policy or to the repurchase of actions”.

Juan Moreno, Bankinter analyst, highlighted in a recent report that the company’s results show “high visibility in cash flows, with growth close to 20% during the 2021-2025 period, its strong investment capacity and a solid financial position , with an average maturity of its debt of more than six years and mostly at fixed cost. In addition, it offers protection against inflation, with a large part of the contracts linked to inflation, ”he explains in his report.

change of strategy

The difficulty of growing at these rates with new acquisitions and the environment of rising interest rates have led Cellnex to announce a new stage in its business, where the organic growth generated with the company’s activity prevails and it enters a period to reduce debt. A slower pace of activity that Goldman Sachs analysts see positive: “Now that Cellnex has moved away from its M&A strategy, we hope this will help remove an unjustified discount (in our opinion) on the shares and boost them” .

In addition to the exploitation of the towers, Cellnex’s businesses will be aimed at activities linked to telephone towers for the development of 5G that requires fiber optics. Also 5G private networks for industrial environments such as ports, mines, petrochemicals or any manufacturing activity. And enhance security and emergency networks, and connectivity in internal environments with high attendance such as tunnels, subways, stadiums, etc.

The company has a net debt of 17,000 million euros, which is eight times its ebitda and they want to reduce it to below seven times in the next two years. They have also set the goal for the debt to reach “investment grade” by the rating agencies (now it only has this note on Fitch).