- Net debt to profit rises above target
- Management promises to bring it down next year
Helios Towers (HTWS) buys towers in Africa and then rents out space on them to telecoms companies. Africa is one of the few continents where populations are still growing and lots of its people rely on mobile banking. They’ve been well ahead of the curve on this front and Helios is acquiring the infrastructure to facilitate this.
Its profit is a function of how many spaces it can rent out on its towers minus how much it costs to run its sites. Last year, Helios increased its tenancies by 30 per cent, which pushed revenue up 25 per cent to $561mn (£496mn) and adjusted cash profit by 18 per cent to $283mn.
The adjusted cash profit margin fell 3.2 percentage points to 50.4 per cent as site numbers increased by 42 per cent. Despite the drop in margin, the portfolio of towers still generated $201mn of cash, up 20 per cent from the year before. But free cash flow was negative because of $765mn of capital expenditure. Helios said $745mn of this was discretionary.
The concern we have had is the rising debt pile, accrued to finance the acquisitions, which over time will drag on cash flow. Net debt rose 77 per cent to $1.68bn and net leverage is now 5.1 times, above the target range of between 3.5 and 4.5 times. Management promises to bring it closer to target next year.
Broker Numis isn’t too worried and expects debt to cash profit to drop to 4.4 times next year as Helios adds more tenants. The broker also pointed to the fact the company trades on 7.9 times cash profit, a big discount to US and European towers companies, which trade at around 19 times. But we would like to see a little more evidence that this business can finance itself in a high-interest-rate world. Hold.
Last IC View: Hold, 110p, 18 Aug 2022
HELIOS TOWERS (HTWS) | ||||
ORD PRICE: | 110p | MARKET VALUE: | £1.16bn | |
TOUCH: | 109.7-110p | 12-MONTH HIGH: | 148p | LOW: 97p |
DIVIDEND YIELD: | NIL | PE RATIO: | NA | |
NET ASSET VALUE: | 0.8¢* | NET DEBT: | $1.68bn |
Year to 31 Dec | Turnover ($mn) | Pre-tax profit ($mn) | Earnings per share (¢) | Dividend per share (¢) |
2019 | 388 | -74.8 | -15.0 | nil |
2020 | 414 | -20.9 | -4.00 | nil |
2021 | 449 | -119 | -15.0 | nil |
2022 | 561 | -162 | -16.0 | nil |
% change | +25 | +36 | +7 | - |
Ex-div: | na | |||
Payment: | na | |||
*Includes intangible assets of $584mn or 56¢ a share. |