Helios Towers’ weathering the storms of H1 2022

Helios Towers reported its H1 2022 numbers on August 18, with good revenue growth and inorganic and organic expansion underlying increased operating profit. The strong results underline the resilience of the towerco model in a world characterised by disruptions to supply chains, rocketing energy costs and Europe’s largest land war since 1945. TowerXchange spoke with the Helios Towers’ team and offers some exclusive comments from Manjit Dhillon, Group Chief Financial Officer and Tom Greenwood, Group Chief Executive Officer.

 

Helios Towers will be speaking at and attending TowerXchange Meetup Africa on October 11-12 in Johannesburg, South Africa. Click here for more details on how to join them. 

Contracted revenues now stand at US$4.2bn having increased by US$700mn since H1 2021 through organic and inorganic growth, of which 99% is from large multinational MNOs, with an average remaining duration of 7.2 years. Pro forma for announced transactions in Oman and Gabon, contracted revenues stand at US$5.3bn. 

 

Helios Towers remains hedged against inflation and energy price increases, as discussed below, and in fact Helios Towers’ markets are seeing lower inflation than headline numbers in the USA or UK. Currency risk remains in some markets, but with the majority of revenues in hard currencies, investors have received Helios Towers’ H1 numbers positively. 

 

Sites increased by 2,091 year-on-year to 10,694 sites reflecting 1,213 acquired sites in Malawi and Madagascar and 878 organic additions. Tenancies increased by 3,459 year-on-year to 20,549 tenants, but Helios Towers’ overall tenancy ratio decreased 0.07x year-on-year to 1.92x because of lower tenancy ratios of newly acquired sites in Madagascar (1.20x) and Malawi (1.58x). 

 

On 7 June 2022, Helios Towers announced it had entered into an agreement with Rakiza Telecommunications Infrastructure to take 30% minority stake in its purchase of Omantel’s towers. With a long stop date approaching on September 30, TowerXchange expects the deal to close before the end of the year.  Likewise, the Airtel Gabon transaction continues to proceed with Airtel and Helios Towers continuing discussions with the regulator for a H2 2022 close.

 

Helios Towers reported its H1 2022 numbers on August 18, with good revenue growth and inorganic and organic expansion underlying increased operating profit. The strong results underline the resilience of the towerco model in a world characterised by disruptions to supply chains, rocketing energy costs and Europe’s largest land war since 1945. TowerXchange spoke with the Helios Towers’ team and offers some exclusive comments from Manjit Dhillon, Group Chief Financial Officer and Tom Greenwood, Group Chief Executive Officer. Helios Towers will be speaking at and attending TowerXchange Meetup Africa on October 11-12 in Johannesburg, South Africa. Click here for more details on how to join them. 

 

Helios Towers’ H1 2022 revenue increased by 25% year-on-year to US$265.4mn vs H1 2021 figures of US$212.4mn. Such growth was driven by acquisitions in Senegal, Madagascar and Malawi and strong organic tenancy growth in addition to CPI and power price escalations. Excluding acquisitions, revenue increased 12% year-on-year. Adjusted EBITDA increased by 19% year-on-year to US$136.1mn vs (H1 2021: US$114.2mn. However, aEBITDA margin decreased to 51% from 54% because of investments in central functions and higher fuel costs in the DRC. Contracted revenues now stand at US$4.2bn having increased by US$700mn since H1 2021 through organic and inorganic growth, of which 99% is from large multinational MNOs, with an average remaining duration of 7.2 years. Pro forma for announced transactions in Oman and Gabon, contracted revenues stand at US$5.3bn. 

 

Helios Towers remains hedged against inflation and energy price increases, as discussed below, and in fact Helios Towers’ markets are seeing lower inflation than headline numbers in the USA or UK. Currency risk remains in some markets, but with the majority of revenues in hard currencies, investors have received Helios Towers’ H1 numbers positively. 

 

Sites increased by 2,091 year-on-year to 10,694 sites reflecting 1,213 acquired sites in Malawi and Madagascar and 878 organic additions. Tenancies increased by 3,459 year-on-year to 20,549 tenants, but Helios Towers’ overall tenancy ratio decreased 0.07x year-on-year to 1.92x because of lower tenancy ratios of newly acquired sites in Madagascar (1.20x) and Malawi (1.58x). 

 

On 7 June 2022, Helios Towers announced it had entered into an agreement with Rakiza Telecommunications Infrastructure to take 30% minority stake in its purchase of Omantel’s towers. With a long stop date approaching on September 30, TowerXchange expects the deal to close before the end of the year.  Likewise, the Airtel Gabon transaction continues to proceed with Airtel and Helios Towers continuing discussions with the regulator for a H2 2022 close.

Our contracts are similar across markets and include escalators linked to CPI, fuel price and grid electricity pricing. 

 

I’ll start with fuel as a starting point. We have 50% of our pricing escalate quarterly and 50% escalating annually. We have fuel price escalators in all our markets. CPI is adjusted annually in around January or December time and so you’ll see revenue increases kick in around then and come through in our reporting. The CPI figures are roughly 50-60% of our lease rate escalators with power costs making up the remainder, within that the cost of fuel is around 20-25%. 

 

The escalators and the balance between them changes year on year and CPI and energy prices fluctuate. The DRC is where we use the most fuel and where fuel price increases make up the largest escalator. But because of our escalators the effect is neutral in terms of EBITDA. 

 

Averaged across our markets CPI has seen a 6% increase year-on-year. That’s lower than in the UK today. For example, in Tanzania CPI is about 4%. This has contributed an increase in our revenues of about 3%. With respect to FX, because of the strength of the dollar and local market effects we have seen a 3% move against us in FX which has translated into a decline in revenues of 1-2%, but our CPI escalators have helped to offset the FX changes. 

 

For all these reasons, despite the inflationary environment and challenges around energy prices our EBITDA remains protected and very strongly hedged on FX, fuel and CPI. 

I am not majorly worried. We have had CPI and energy price linked contracts for many years. In some years the power escalators go up a bit and in some years they go down a bit. Its a bit swings and roundabouts. We are working with customers on win-win solutions and helping them manage short term spikes in energy pricing. 

 

We are currently seeing strong rollouts from key mobile operator customers in many markets. We have had a strong H1 in tenancy additions, in the last twelve months we have added about 1,800 tenancies organically and have a decent pipeline of new sites and tenancies ahead of us at the moment. 

Higher fuel prices have made it more viable to invest in renewables, hybrid solutions and connecting sites to the grid. We have an engineering team that has the job of right sizing the power set-up for every single site and energy price increases are changing which business cases stack up. Business cases which were on the edge of clearing our hurdle rate a year ago are now quite likely to pass them. 

 

On top of the improving economics of renewables, we also have carbon emission reduction targets. We published our sustainability strategy last year in November where we articulated very clear targets by 2030 to reduce energy intensity per tenant by 46%. We have a clear plan on deploying battery, solar and grid across the site portfolio to achieve that. 

 

Helios Towers currently has some sort of renewable technology (i.e. a larger bank of deep cycle or solar) on 30% of our sites (excluding recent acquisitions), and we are aiming to get that up to 70% of sites. We are also trialling wind turbines to add to our energy mix which are looking pretty good thanks to progress in the technology. 

John Karidis, Numis: “Another very good quarter:  Ex acquisitions, USD-denominated revenue/EBITDA grew 14%/9% YoY in 2Q FY22 (profit growth was less fast since HTWS is investing extra in corporate SG&A this year to underpin its much enlarged footprint). 316 organic tenancy adds in 2Q FY22 are vs 94 a year ago and our forecast of 220. 675 tenancy adds in 1H FY22 are vs 170 a year ago. In any one year, HTWS expects 1H/2H tenancy adds to be c.25%/75% of FY growth. If this happens this year, HTWS will deliver 2,700 adds in FY22 (675/25%) but, before today, we and consensus expected c.1,300 adds in FY22. For now, HTWS is not changing its guidance of 1,200-1,700 tenancy adds in FY22. We think this is for prudence only, because, as of Jul-22, key customers such as Airtel Africa, Vodacom and Orange signalled no plans to reduce/slow capex… We estimate HTWS currently trades on 11.0x FY22 EBITDA, and we think it is worth 16.4x; US and European TowerCos trade on 25.9x and 19.5x on average.”

Jerry Dellis & Yi Hsin Yeoh, Jefferies: “Key Takeaway: Helios reports strong site/tenancy adds in-line with JEFe. Reinforces our view that MNOs remain committed to rollout plans despite macro backdrop. LFL rev growth reached +14% y/y in 2Q (+12% ex fuel escalator/FX headwind). Higher DRC fuel cost tightened 2Q margin but should correct from 3Q as escalator updates. FY22 guidance confirmed. Omantel/Gabon now expected to close in 2H (already 31 Dec in our model). We have updated forecasts but changes are very minor.”

Berenberg: “Our view: Helios has reported numbers broadly in line with consensus expectations for H1 and is on track for the full year. We continue to believe that the company offers an excellent way to gain currency-neutral exposure to higher growth opportunities in frontier markets and to earn outsized ROCE as and when it adds more tenants per tower. Additionally, Helios’s contracts protect the company with CPI escalators and power escalators, ensuring it is not exposed to inflation (including rising fuel costs). With the Oman acquisition anticipated to complete in H2 as well, we would expect the company to focus on growing its tenancy ratio in the next couple of years to further the organic equity story. The stock looks cheap at c8.5x EV/EBITDA on FY22 numbers compared to its average c10x multiple over the past 10 years. Buy.”

Helios Towers will be speaking at and attending TowerXchange Meetup Africa on October 11-12 in Johannesburg, South Africa. Click here for more details on how to join them.