Cellnex: Target Price of €17.5 Against Previous €17; Further M&A Opportunities

CellnexCellnex

A Citi’s report reiterates their Buy rating on Spanish Cellnex at a revised TP of €17.5 (from €17.0). Cellnex shares have under performed the sector by c.16% since mid -Oct 2016. They believe that this is mainly due to higher government bond yields and the market’s rotation out of yield stocks which, in the case of TowerCos, may have been exacerbated by their dependence on M&A.

We expect Cellnex to continue to deliver strong organic growth and benefit from value accretive acquisitions. Top-line gro wth, effective cost management and low cash taxes drive our forecast for 2015 -18e recurring levered FCF CAGR of +14%. With strong cash generation and balance sheet capacity, we see scope for further acquisitions or , in time, a higher dividend pay -out. We see the share price weakness as providing an attractive entry point.

Further M&A opportunities

Cellnex has made acquisitions of c.€670m enabling it to expand its footprint to 5 countries. The company announced the second phase of its Bouygues tower portfolio acquisition in Dec 16. Citi believe that the recent acquisitions are “strategically positive” and “lend credence to its ability to consolidate the fragmented European towers market”.

We anticipate further M&A opportunities and also expect Cellnex to benefit from small cells and the entry of Iliad in Italy.

Extrapolate to 2017e

Based on recent trends and allowing for acquisitions, analysts estimate 2016e adjusted EBITDA of c.€290m, +22% y/y and RLFCF of c.€230m, +18% y/y. For 2017e, they expect additional EBITDA of c.€5 1m with c.€10m from reinstated broadcasting channels, c.€38m from acquisitions and the rest from organic growth. Then they forecast 2017e EBITDA/RLFCF growth of c. 19%/17% y/y.

Changes to estimates

Analysts incorporate the recent M&A transactions in their estimates raising our 2017 -2018e revenue and EBITDA estimates by 6%/7% and 10%/10% respectively.

We adjust our estimates to reflect the associated depreciation, funding cost and tax in our estimates and upgrade our RLCF estimates by 9%/9% in 2017/18e.