Telkom SA, South Africa’s third largest wireless carrier, today announced that it is pursuing a separate listing of its tower infrastructure, known as Swiftnet, on the Johannesburg Stock Exchange (JSE) to “unlock further value” in its 3.7k productive towers, which reside in the company’s Gyro Masts & Towers business unit. Indeed, Swiftnet has operated as a separate tower company for 3+ years and Telkom SA deems that the value of its towers is “not fairly reflected in the Telkom share price”.
Notably, Telkom SA’s full portfolio of towers amounts to 6.2k sites. However, the company’s 3.7k productive portfolio is the relevant metric from a monetization standpoint, as these assets are commercially viable. Indeed, the remaining 2.5k towers either do not have tenants, are located in low-demand areas, and/or have unfit physical characteristics.
Finally, Telkom SA’s board of directors anticipates making a final determination regarding a separate listing before the end of its financial year (i.e., March 2022).
Towers Portfolio – Telkom SA’s Swiftnet
Telkom SA’s 3.7k productive tower sites in South Africa have a tenancy ratio of 1.54x. Indeed, this equates to 5.7k tenants with equipment on the company’s towers. Also, Telkom SA classifies its 3.7k productive tower portfolio as growth and mature, based on tenancies, as follows:
- Growth: 2.4k towers with 1 or less tenant – average tenancy ratio of 0.36x
- Mature: 1.3k towers with 2 or more tenants – average tenancy ratio of 3.74x
Additionally, Telkom SA notes that, over the next 10 years, its blended tenancy ratio could increase from 1.54x to 2.3x.
In terms of customer mix, Telkom SA’s tenants are 44% Telkom Mobile (Telkom SA’s subsidiary), 35% third-party wireless carriers, and 21% third-party non-wireless carriers.
Build Program
Telkom SA built 116 towers in FY2021 (year-ended March 31, 2021) and constructed 26 towers during the June 2021 quarter. Additionally, the company has a permitting pipeline to build a further 2.0k+ towers.
To this end, Telkom SA estimates that South Africa will require 12.0k new towers over the next 10 years. Drivers of this demand include increasing data consumption, additional capacity for 4G coverage, and for 5G deployments.
Financials
For the year-ended March 31, 2021, Telkom SA’s Gyro Masts & Towers business unit reported revenue of ~$83m (1.2bn South African Rand), a 6.6% increase year-over-year, and EBITDA of ~$66.7m (994m South African Rand), a 23% increase year-over-year. Therefore, the company’s EBITDA margin was 80.4% in FY2021, a 10.8% increase year-over-year.
Valuation
A relevant valuation comparable for Telkom SA’s Swiftnet is SBA Communications’ acquisition, in late 2019, of Atlas Towers South Africa. Specifically, SBA Communications valued Atlas at an enterprise value of ~$150k per tower.
Also, Telkom SA highlights EV/EBITDA valuation multiples, for its Gyro Masts & Towers business unit, of publicly-traded comparables in the global towers sector. Notably, the average for this peer group, which includes Telesites, Tower Bersama, Rai Way, Helios Towers, Digital Telecommunications Infrastructure Fund (DIF), and Protelindo (Sarana Menara Nusantara), is a valuation of 11.2x EBITDA.
Assuming similar valuation metrics to the above comparables, Telkom SA’s Swiftnet tower company could be worth $550m+ (8.2bn+ South African Rand).
Rationale
For Telkom SA, monetizing its Swiftnet tower portfolio enables the company to have the flexibility to reduce its debt and re-invest in it core wireless business.
Tower Infrastructure Monetization in Africa
Telkom SA’s plan to separate 3.7k towers in South Africa via Swiftnet showcases recent tower infrastructure monetization activity in Africa. Particularly, companies including IHS Holding, MTN South Africa, and Airtel Africa have recently accelerated their tower monetization efforts.
IHS Holding
In September 2021, IHS Holding Limited, the parent company of IHS Towers released its Form F-1 for the initial public offering (IPO) of its shares. Specifically, IHS Holding operates 30.2k towers across five countries in Africa, three in Latin America, and one Middle East country.
MTN South Africa
MTN South Africa operates a portfolio of ~13k towers in South Africa. Presently, the company is exploring the possibility of executing a sale-and-leaseback transaction for a portion of its portfolio.
Airtel Africa
In March 2021, Airtel Africa announced a series of transactions with Helios Towers, whereby Helios would acquire and roll-out 2.5k+ tower sites in Africa. Specifically, these sites are in the four African markets of Madagascar, Malawi, Chad, and Gabon.
Additionally, in June 2021, Airtel Africa, via its subsidiary Airtel Tanzania, agreed to sell SBA Communications 1.4k towers in Tanzania. Particularly, SBA Communications is purchasing these sites for $175m, equating to a valuation of $125k per tower.
