Cellnex - Capital Markets Day 2024
Executive Summary.
The new CEO, Marco Patuano, emphasized a focus on operational efficiency and shareholder returns. The company aims to achieve a 2027 free cash flow generation eight times higher than 2023, with a leverage target of 5-6 times. Cellnex plans to allocate 3 billion euros in dividends by 2030 and aims for a 64% EBITDA margin by 2027. The strategy includes a mix of organic growth, efficiency improvements, and selective investments in adjacencies. The company plans to optimize land leases and rationalize overlapping towers, with a focus on efficiency capex. The potential sale of assets in Ireland and Austria was mentioned.
Overview
Provide enhanced financial reporting with more granular details on revenues, OPEX, EBITDA, and capex.
Achieve investment grade credit rating by 2024.
Establish a medium-term leverage target of 5-6x by 2025-2026.
Allocate a minimum of €3 billion in dividends between 2026-2030.
Evaluate share buybacks, extraordinary dividends, and strategic investments for the remaining cash
Introduction
The growing demand for connectivity in Europe is highlighted, along with Cellnex's role as a neutral wireless telecoms infrastructure operator. The company has experienced significant growth since its IPO in 2015 and has appointed Marco Patuano as CEO. Governance updates include the establishment of a new capital allocation committee to review management's capital allocation proposals. The company is positioned as an industrial player, prioritizing growth through internal initiatives rather than acquisitions. Efficiency improvements emphasize small adjustments and the 80/20 rule to focus efforts effectively.
Organisational Update
The second phase of the project focuses on enhancing operational efficiency and increasing shareholder returns. The company's history since its inception in 2015 includes significant growth in assets and total shareholder return. Currently, the company operates over 110,000 towers, 110 edge data centers, and spans 12 markets. Additionally, there have been changes to the management team, including the appointments of a new Chief Strategy Officer, Chief Financial Officer, and other key personnel, along with a reorganization of the company.
Growth and Contract Flexibility
Adam Smith discusses the growth of new business on a per-site basis, highlighting the incremental increase from 4G to 5G. He emphasizes the importance of retaining real estate rights for future investment cycles. Additionally, he mentions comprehensive agreements with two of the three major carriers and the complexities associated with them. The discussion also covers the use of drone flights and extensive data sets to assess customer equipment and available space.
Operational Value Creation and Efficiency Plan
The focus is on operational value creation and achieving the company's 2025 targets. Plans include increasing cash conversion and free cash flow generation by streamlining the BTS program and enhancing efficiency. The long-term leverage target is set at 5 to 6 times, with a goal to generate over 10 billion euros in cash resources by 2030. Additionally, a minimum of 3 billion euros is planned for dividends between 2026 and 2030, while the remaining 7 billion euros will be allocated to various options, including buybacks and industrial business opportunities.
Growth Story and Business Model
The company is recognized as the Pan-European leader in the tower sector, operating in 12 markets with a diversified client base. Its business model encompasses towers, small cells, RAN-as-a-service, fiber connectivity and housing services, with towers accounting for 80% of revenue. The company boasts over 110 billion euros in contractualized growth and has demonstrated a strong capability for organic growth.
Mobile Telco Consolidation and Inflation
The impact of mobile telecom consolidation and inflation on the company's strategy is discussed. There has been consolidation in key markets, including Orange in France, Vodafone in the UK, and Vodafone Fastweb in Italy. The company has proactively engaged in negotiations with mobile network operators, estimating that less than 1% of its revenue is at risk from consolidation. Additionally, with 65% of its contracts indexed to inflation, the company has some protection against margin pressure caused by inflation.
Strategy and Execution
The company’s strategy centers on growth, efficiency, and maintaining high service quality. Plans include prioritizing collocation, maximizing value from the BTS program, and expanding the asset portfolio. To increase productivity, the company will implement standardization, visualization, and utilize specific tools and software platforms. The efficiency plan also involves cost optimization, tower rationalization, and digital transformation to enhance productivity and reduce costs.
Q&A
There are no current acquisition plans, with the focus on geographic optimization. The company is the largest in Europe and seeks to consolidate in markets where it is not already a top player. Expectations for industry consolidation include MNOs and networks becoming more efficient. The company aims for market optimization, citing examples from Italy and Spain. There is potential for six to seven large tower operators in Europe, highlighting the importance of scale efficiency.
Questions are raised about the risk of credit quality in the customer base and their willingness to participate in rationalization programs. The company emphasizes that it shares value with customers to encourage cooperation, particularly in BTS rationalization. Questions about the impact of additional capex related to renewals are addressed, clarifying that this is not included in the guidance. The importance of rationalizing overlapping towers and securing customer cooperation is also highlighted.
Questions are raised about the timing of densification and assumptions regarding tenancy. The challenges of achieving high tenancy rates are acknowledged, with an emphasis on market optimization. Inquiries about asset sales confirm the potential sale of assets in Ireland and Austria. A strategic review of the portfolio is discussed, highlighting the importance of resource allocation for long-term value creation.
Questions are raised about the leverage target and the connection between land leases and service capex. The defensive and effective aspects of land leases are explained, along with the significance of dedicated capital structures. The potential for increased land ownership and the advantages of a dedicated land company are discussed. It is emphasized that matching contracts with land leases is crucial for ensuring predictable cash flow and minimizing risk.
Questions are raised about new contracts with secondary tenants and the pricing power of telecom towers in Europe. It is explained that the market for anchor tenants is cost-driven, while the secondary tenant market is value-driven. The importance of capturing growth and remaining competitive in the secondary tenant market is emphasized. A balanced approach to pricing and the need for customer cooperation are also highlighted.
An investment grade rating has been awarded to the company by S&P, highlighting the significance of maintaining a prudent capital structure. There is a commitment to staying investment grade, with an emphasis on clear capital allocation
You can listen to the full presentation on Cellnex website here>
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