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AMT - American Tower Corp


chrispy
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Everyone is probably somewhat familiar with AMT but it is currently trading at about the midpoint between COVID march low and 52H.  I am not finding many good quality big names that are trading within that range which is why I have some interest in AMT.

 

They have had hiccups in India recently which they are hopping will be addressed soon. It sounds like the mergers in the US will not have as much of an impact on revenue (especially over several years) as headlines would make one think. They certainly benefit from being able to borrow at ridiculously low rates and plow into income generating assets. 

 

Additional optionality with AMT is their ability to put small data centers next to their towers for fantastic speeds as well as 5G may lead to more towers being required.  Dont expect the data centers to move the needle much if at all.

 

Does anyone have thoughts on why AMT is trading here or prospects moving forward?

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Perhaps due to rates? Some of these defensive growers are valued very highly and probably seen as a bit of a bond proxy. I'm not smart enough to invest in something trading at such high levels, but it's an interesting space, and I've been looking at Helios Towers recently (which trades at more like 10x2021 ebitda versus AMT@23xebitda).

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At the UBS Global TMT Conference on 12/7/2020, the CFO alluded to some Sprint related churn...

 

"We’ll see probably the largest churn year from the Sprint churn to be in 2022 on an annual basis. And then, we’ll begin to pull out of that in 2023 and 2024. So, we’ll have that churn spread over a four-year period with the bulk of that coming through in 2022."

 

Another factor that might weighing on the stock is the elavated leverage at the high end of the targeted 3-5x range due to the InSite acquisition.

 

On the other hand, the CFO is optimistic on gaining US business as Dish builds out a nationwide network. They are borrowing at under 3% and have lots of room to grow in India, Europe and South America. The order book is $58B in committed future revenues.

 

https://seekingalpha.com/article/4393408-american-tower-corporation-amt-presents-ubs-global-tmt-conference-transcript

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Ugh, yes I've been thinking the same, though more because I'm generally happy to piggyback off Akre favourites when they drop down.

 

Quality companies like this are never going to be 'cheap', so one has to decide at what's a 'reasonable' price when it becomes 'slightly cheaper' like now.

 

Part of me thinks that this type of thing is slightly less fashionable this year because everyone is buying Tech IPOs and SPACS, and so this is maybe a time to start, and add more if it keeps going down.

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Did any of you take a look at some of the other tower companies? I'm having a hard look at Helios Towers which is focused on Africa and trades at more like 10xebitda and has 2/3 of currencies pegged to USD and Euro. It seems like they have a long runway of growth ahead of them. At the same time, there's significant room for margin expansion as well as lowering their cost of debt which combined with revenue growth could set them up for some massive EPS growth. I've always stayed away from investing in Africa, but the combination of a simple business, less currency risk and what seems like able management (Fairfax started working with Helios) makes it look interesting. They expect to be in 8 countries down the road, but at the moment there is some concentration risk in Tanzania (more on Tanzania here: https://www.eulerhermes.com/en_global/economic-research/country-reports/Tanzania.html)

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Did any of you take a look at some of the other tower companies? I'm having a hard look at Helios Towers which is focused on Africa and trades at more like 10xebitda and has 2/3 of currencies pegged to USD and Euro. It seems like they have a long runway of growth ahead of them. At the same time, there's significant room for margin expansion as well as lowering their cost of debt which combined with revenue growth could set them up for some massive EPS growth. I've always stayed away from investing in Africa, but the combination of a simple business, less currency risk and what seems like able management (Fairfax started working with Helios) makes it look interesting. They expect to be in 8 countries down the road, but at the moment there is some concentration risk in Tanzania (more on Tanzania here: https://www.eulerhermes.com/en_global/economic-research/country-reports/Tanzania.html)

I have recently made Helios Towers a small portion of my porfolio. Will do a quick writeup

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If they hit their goal of 12k sites in the next 5 years, expand tenant per site ratio by .02 and increase revenue per tenant by 2% (around CPI) for each of the next 5 years, adj EBITDA would be $440mm assuming constant adj EBITDA margin at 55%. That would position them as the leading tower operator in Africa with all of the mobile penetration and economic growth tailwinds that accompany that. What would that business be worth? Probably more than 10x EBITDA.

 

I'm early in the DD process but it seems compelling. A few things I need to get comfortable with. I want to get a better grasp of the rent escalators in place with these contracts; revenue per tenant growth has been choppy. Also need to dig deeper to see what costs are being excluded in the Adj EBITDA line-item. In their Senegal site acquisition, they paid 12x run rate EBITDA. How much debt is needed to fund the 12k site goal? Also what is the overhang from Helios Capital's PE exit? I see they own 12% of the outstanding but there is only a 51% float on the stock. If the IPO lockup was 1 year, they would've been free to begin selling in Oct. I haven't seen an updated holdings size for them or Newlight Mgmt (own 15% of OS) since last December.

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This interview might be worth listening to (although the questions are garbage and first part on covid is pretty meaningless): https://african.business/podcasts/helios-towers-ceo-kash-pandya-explains-deal-making-strategy/

 

Just some quick notes;

 

CEO says they can do two more "Senegal"-acquisitions which was 1.200 towers plus another 500 to be built with the debt capacity they have already. Says their pipeline is around 20.000 towers and that they are very busy. Say they should reach their 5 year target faster than expected.

 

Says listing was compelling since they can raise equity financing that way, but I don't think they'd issue equity here. Said on the recent CC that they found the shares undervalued and attributed that to possible stock overhang. Millicom recently sold a large stake, like 5 pct., but they're not completely out yet.

 

They're at 55 pct. ebitda-margins, target is 55-60 pct. AMT is closer to 65 pct. margins, but there might be structural reasons as to why that won't change (I'm not an expert on the space but probably higher density on their towers?).

 

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