Buy into African infrastructure with Helios Towers

The group, which listed on the London Stock Exchange last October, buys towers held by single operators and then provides infrastructure services to both the seller and other operators. This allows operators to outsource some of their tower-related activities, freeing up cash to support other parts of their businesses; a trend that may receive added impetus from the coronavirus crisis. 

Helios still has plenty of room to grow in Africa, too, as mobile penetration is relatively low. In DRC for example, with a population of around 50m people, Helios believes only around 50 per cent have mobile network coverage. And the group’s presence is only getting stronger: its tenancy ratio (the average number of customers using each tower) grew to 2.1 at the end of March from 2.01 at the start of 2019. This is important as the internal rate of return (IRR) from each tower rises significantly with the number of tenancies. Broker Numis estimates an IRR of 9 per cent with one customer, 19 per cent with two and 31 per cent with three. 

The group’s ambitions are not cheap, with net debt at the end of March of three times adjusted cash profit. Still, there is a good amount of cash and undrawn debt on hand of $231m (£188m) and as a company that supports critical infrastructure, demand is largely resilient. That said, its dependence on relatively few, albeit higher quality, customers does present risks. Last year, debtor days (the average wait for customers to pay their bills less advanced payments) increased from 30 to 57 days, with 73 per cent relating to a single customer. This is worth keeping an eye on. The region it operates in also poses political and currency risk – although Numis calculates that about 70 per cent of free cash flow is in hard currencies, mainly US dollars. 

So far management has not flagged an operational impact from coronavirus, and with telecoms infrastructure classed as an essential service, revenues have held up at $101.8m in the first quarter, up 2 per cent from the final three months of 2019. This relative safety has meant that the market has also been upbeat on the group’s performance, recently pushing Helios Towers up into the IC Ideas Farm’s new 52-week highs list.