Helios Towers' strong cash generation means it could start paying a dividend

Helios Towers (HTWS) might not be bringing down its net debt levels, but revenues and operating cash flows are heading in the right direction.

The African telecommunications company borrowed a lot of money to acquire towers across the continent. The concern was that the debt pile would drag on financial performance as refinancing costs ratcheted up. This has proved to be the case with these costs rising 31 per cent from $193mn (£152mn) to $253mn.

In the year to December 2023, revenue rose 29 per cent to $721mn as a result of a higher number of sites and increased tenancy ratio. The number of tenants on each tower rose from 1.81 to 1.91. The aim is to hit 2.2 by 2026.

A higher tenancy ratio means improved operating margins because it doesn’t cost that much extra to add more tenants to an existing tower. Correspondingly, operating profit rose by 82 per cent to $146mn. This contributed to adjusted cash profit (Ebitda) rising 31 per cent which brought down the net leverage from 5.1 times adjusted Ebitda to 4.4 times.

Promisingly, portfolio free cash flow increased by 33 per cent to $268mn. This cash generation means Helios could potentially start handing out dividends, with management saying it is “close to a juncture where the capital we generate allows us the capacity to make distributions to our investors”.

Broker Jefferies expects earnings per share to rise to 8¢ in 2024 and then 12 in 2025, leaving it trading of a 2025 price/earnings ratio of 8.2. We are still cautious about debt, so we will wait for another step up in profitability. But there is a good chance that we have already seen the top of the interest rate cycle. Hold.

Last IC View: Hold, 91p, 03 Aug 2023