Vantage Towers will be the second largest European towers operator with 68k tower sites in nine countries in Europe, once the company becomes independent through and initial public offering (IPO) in early 2021. Specifically, these countries include Germany, Italy, Spain, Greece, Czech Republic, Portugal, Romania, Hungary, and Ireland. Vantage Towers is either the #1 or #2 tower operator in eight out of the nine European countries that it operates in.

Vantage Towers is currently a 100%-owned subsidiary of Vodafone Group (LON: VOD). The company is being spun-off into a separately publicly-traded company through an IPO in early 2021. In terms of leadership, Vantage Towers will be led by Vivek Badrinath, as Chief Executive Officer and Thomas Reisten, as Chief Financial Officer.

Additionally, Vantage Towers owns 5.8k small cells and distributed antenna systems (DAS) sites. Specifically, these sites are 22% small cells and 78% DAS, with a 1.4x tenancy ratio.

Vantage Towers – Operational Metrics

Vantage Towers owns 45.5k tower sites, excluding the towers it owns through Italian tower company INWIT (BIT:INW). Indeed, these 45.5k tower sites have 62.1k tenants, equating to a 1.4x tenancy ratio. Additionally, 35% of the company’s towers are ground-based, with 65% being rooftop towers.

Vantage Towers also has build-to-suit (BTS) programs of 7.1k tower sites, which will help the company to grow its tower portfolio further. Overall, the build-to-suit program will increase Vantage Towers’ total tower site count by 10% to 75.1k tower sites across Europe. Furthermore, the 7.1k new tower sites will contribute €130m of adjusted EBITDAaL (earnings before interest, taxes, depreciation, and amortization after leases) by 2027.

Vantage Towers – Financial Profile

Vantage Towers projects it will generate €945m of total revenue in 2020, of which 94% derives from tower sites. Additionally, 95% of the company’s revenues are from investment grade tenants through mainly long-term master service agreements (MSAs). Specifically, Vodafone Group is Vantage Tower’s anchor tenant with a master service agreement (MSA) of 8 years, including 3 automatic renewals, effectively extending the agreement for 32 years in total.

Vodafone Group will comprise 80%+ of Vantage Towers’ revenue as a standalone company. Additionally, the Vodafone agreement is inflation-linked and subject to a 0% floor and 2% cap on inflation. However, in Germany, Vantage Towers’ largest market, the inflation floor is -2%.

In terms of earnings, Vantage Towers projects it will generate €523m of consolidated adjusted EBITDAaL (55% margin) in 2020. Including Vantage Towers’ 33% ownership interest in INWIT (BIT:INW), the company’s earnings rise to €680m of adjusted EBITDAaL in 2020.

These EBITDAaL figures are also prior to the anticipated €50m to €70m of EBITDAaL contribution from Vodafone’s 50% stake in Cornerstone Telecommunications Infrastructure Limited (CTIL) in the UK. Notably, in January 2021, Vodafone agreed to transfer their 50% share in Cornerstone to Vantage Towers. Additionally, Vantage Towers projects it will generate €373m of Recurring Levered Free Cash Flow (RLFCF) in 2020.

Vantage Towers will begin operations as a standalone company with asset leverage at 4x net debt to EBITDA. Additionally, the company will have a dividend policy to payout 60% of Recurring Levered Free Cash Flow (RLFCF) annually.

Vantage Towers’ Largest Markets

Focusing only on the towers which Vantage Towers owns 100% of (i.e., excluding INWIT towers in Italy), the company’s three largest markets are Germany, Spain, and Greece. Indeed, Germany comprises 50% of Vantage Towers’ total revenue and 55% of the company’s EBITDAaL. Additionally, Spain generates 15% of the company’s revenue and Greece contributes 10% of revenue.

Vantage Towers – Financial Projections for IPO in 2021

Vantage Towers expects that data growth in Europe will accelerate through greater adoption of 5G. Additionally, substantial coverage obligations for wireless carriers will create additional demand for tenancies and new tower sites being built. With this backdrop, Vantage Towers’ management has provided initial 2021 guidance, ahead of its IPO. Specifically, the company projects for 2021, total revenue of €955m to €970m, EBITDAaL of €530m to €540m, and RLFCF of €375m of €385m.

Over the medium-term, Vantage Towers anticipates securing an additional 13.4k tenants on its towers to bring total tenants from 62.1k in 2020 to more than 77k tenants. Indeed, this means that the company’s 1.4x tenancy ratio will increase to be greater than a 1.5x tenancy ratio.

In terms of M&A, Vantage Towers’ management indicates that the company has €1.0bn in debt capacity for inorganic growth in Europe. Specifically, this debt capacity is the difference between Vantage Towers’ post-IPO leverage of 4x in 2021 and 5.5x leverage ceiling. Furthermore, Vantage Towers could raise additional equity capital to pursue any larger acquisition opportunities, should they arise.

Vantage Towers – Valuation for IPO in 2021

Preliminarily, Vantage Towers will have an enterprise value of €20bn+ at the time of its IPO in 2021. Indeed, this equates to a valuation of €300k per tower on the company’s 68k total tower sites. Factoring-in an IPO discount and leverage of 4x, this implies a market capitalization of €15bn+ for Vantage Towers.

Adam Simmons is the Founder & CEO of Dgtl Infra. He started his career with an S&P 500-listed big box retailer, in an operations management role. Adam's entrepreneurial "itch" led him to start a 5G-driven company, focused on innovative retail solutions using augmented reality and shoppable videos, which was eventually sold to an advertising and consulting group. After, realizing the potential of 5G, Adam shifted his efforts towards investing in the "building blocks" of 5G - known as digital infrastructure, completing a number of strategic investments, buying cellular towers, data centers and fiber networks.

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