Helios Towers debt will go on forever

  • Net debt increases by 40%
  • Organic revenue increases 12% year over year

Helios Towers (HTWS) is an expensive business to run, depending on whether the costs of financing its high debt and maintaining infrastructure will grow faster than revenues. Its business is based on telecom companies that pay for spots on Helios towers that are scattered across Africa. Simply put, the more spots he sells on the towers, the more money he makes.

In the first half of the year, Helios increased its number of sites by 24% to 10,694. Its number of rentals increased by 20%, with the rental rate slightly down to 1.92 tenants per turn from 1.99 .

The decrease in the rental ratio is explained by the fact that the new assets acquired in Madagascar and Malawi had lower ratios than the rest of the portfolio. Helios hopes to align them with the rest of the company. This rapid expansion is reducing profitability, with the adjusted cash profit margin dropping by 3 percentage points, but when this expansion ends, margins can be expected to rebound.

The problem for Helios is that it took on a lot of debt to fund all of its tower acquisitions. Net debt rose 38% to £1.08 billion. The net debt to cash profit ratio is high at 3.9x, while finance charges have increased by 62% to $104.7m (£86.93m). After financial costs and £76 million of depreciation costs are taken into account, the company’s profits fall from an adjusted cash profit of $136 million to a loss of $122 million before tax.

Helios should be confident in its ability to repay debt as it has $4.2 billion in contract revenue with blue-chip telecommunications companies with an average remaining term of 7.2 years. Most of these contracts are also indexed to the CPI, so as inflationary costs rise, so does revenue.

The concern is how much maintenance and financing costs will weigh on cash flow, especially after 2025 when most debt will come due. Maintenance and upgrade capital expenditures were $20.2 million this semester, which was well below the $76 million in depreciation. This could generate the need to catch up on investment spending further down the line to add to higher financial costs if interest rates continue to rise.

Broker Numis estimates that Helios is trading on an FY2022 EV/Ebitda ratio of 11x, which is lower than its US peers of 25.9x. Numis also expects its revenue to grow by 50% by 2024. However, we believe rising funding and maintenance costs will be a drag. Hold.

Last seen IC: Waiting, 124p, Mar 17, 2022

ORDER PRICE: 137p MARKET VALUE: £1.38 billion
TO TOUCH: 137p – 138p TOP OF 12 MONTHS: 190p LOW: 105p
NET ASSET VALUE: 5p NET DEBT: $1.05 billion
Half-year to June 30 Revenue ($M) Profit before tax ($M) Earnings per share (¢) Dividend per share (¢)
2021 212 -43.6 -5.1 nil
2022 265 -122 -11.9 nil
% change +25
Ex div: N / A
Payment: N / A

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