Debt pile has Helios Towers at a discount to peers

Helios Towers (HTWS) is delivering on its growth promises but not on reducing its leverage. The African telecoms tower company, which powered its expansion through debt-fuelled acquisitions, is starting to see some modest organic growth acceleration.

In the six months to June, organic revenue rose 18 per cent year-on-year. Half of this growth was from increased tenancies on its towers while the other half was driven by its inflation-linked contracts. This was marginally up on the growth rate recorded in the first quarter. Similarly, broker Numis was pleased with the adjusted cash profit (Ebitda) growth increasing from 11 per cent to 13 per cent. Modest increases to be sure, but certainly in the right direction.

The drag on the company’s share price is the debt pile. Net debt has increased from 3.9 times adjusted cash profit to 4.8 times in the last year. Total financing costs only rose 5 per cent to £110mn, slower than profit growth because 80 per cent of the debt is on fixed-rate terms.

However, it is not obvious when Helios will need to start refinancing at higher rates. Numis says it thinks there is a year before the process begins but more detailed numbers from the company would help boost confidence. Rising financing costs will drag on profit but transparency is important.

Helios Towers upgraded its cash profit and portfolio free cash guidance by 1 per cent each and Numis points to the fact that it trades at almost a third of its peer's EV/Ebitda multiple as reason for an upgrade.

We would like to see the net debt figure start to drop or get a little more detail on the debt profile. Recent share price weakness and improving organic growth suggests an entry point could be approaching. But we stick to hold.

Last IC View: Hold, 110p, 16 Mar 2023