Telxius: A Companion For Cellnex In The Spanish Stock Market

Fernando Rodríguez | Telxius Telecom, Telefonica’s new telecommunications’ infrastructure subsidiary, will build and manage Marea, the subsea cable across the Atlantic that Facebook and Microsoft will run from Virginia Beach in Virginia to Bilbao in Spain. The announcement comes at exactly the right time as Telxius’ IPO is about to happen on 2nd June. Analysts consulted by The Corner believe this will go down well with investors. It will also be a companion for Cellnex Telecom, as another representative from this sector in the Spanish stock market.

M&G Valores analyst Nicolas Lopez  thinks that Telxius is the the “typical defensive stock, with stable and predictable revenues, almost like a bond.” So it’s a good investment at this moment “when the market’s pyschology is very defensive, with an aversion to risk,” although how well the share placement is received will depend “on the price Telefonica wants to assign.”

In addition to these general market conditions there is also the attraction of the sector in which Telxius operates, like Cellnex Telecom, which had a successful IPO just under a year ago.

This sector is luring investors because the European market is very fragmented and there are expectations for consolidation which will bring interesting opportunities,” says Renta 4 Banco analyst Angel Perez. Telxius’ success will in part depend on how Telefonica sells the company to the market.

“We don’t know if Telefonica’s idea is simply to generate cash or if it wants to increase Telxius’ size via acquisitions,” he adds. Although it would perhaps be more a more attractive proposition if Telxius was a leader in the global sector consolidation process, the fact that it depends on a specific company like Telefonica – like the majority of other companies in the sector in Europe – would complicate its expansion. Its competitors would probably be very defensive about selling off their assets, which in turn would cloud the market’s perception of Telxius as a growth stock.

Alvaro Aristegui, analyst at Ahorro Corporacion Financiera (ACF), is very positive about the attraction of Telxius: “there are more and more pension and infrastructure funds – for example in the US, Cananda or Australia which invest in companies of this kind. The interest is increasing because investors are looking for investments with acceptable returns without excessive risk. And there are few of these outside the stock market, given the current low interest rates. So it’s likely this interest will continue.” So the technical complexity of Telxius’ business would make it a stock for institutional investors, at least in the short term. These kind of investors were in fact Cellnex Telecom’s initial priority for its IPO. In the longer term, in function of its corporate strategy and development, Telxius could become a stock with a foreseeable attractive dividend yield for private investors as well. Rodrigo Garcia, analyst at XTB, advises “not to participate in companies’ IPOs by default, to avoid the effects of a valuation which, initially, could be excessive.” It’s better to wait for “at least two quarterly accounts for the price to adjust. Then you can decide whether to invest or not.”

As far as Telxius’ risk goes, Garcia doesn’t see any particular difference with respect to other technology companies: “its risk premium, in terms of volatility, is slightly higher than the market. So this demands a higher return.”

Renta 4 Banco’s Angel Perez believes that although Telxius and Cellnex Telecom operate in the same sector, there is sufficient demand in the market for both stocks.

In addition, they can be seen as complementary due to the differences between them: for example, Telxius is owned by a telecommunications operator – Telefonica – while Cellnex Telecom could be considered as an independent company. Furthermore, there are slight differences in the profile of their asset portfolios.