Cellnex goes organic as Hutch deal closes

Cellnex Telecom is putting its wallet away following the long-awaited completion of its UK towers deal, focusing instead on organic growth and boosting its credit rating.

The passive infrastructure specialist, which has been at the centre of towers M&A activity across Europe in recent years, shared its new, non-expansionist strategy alongside the presentation of its latest quarterly numbers. The results showed strong revenue, earnings and free cash flow growth, but a net profit decline and an increase in debt.

There were no real surprises in Cellnex’s numbers; indeed, the markets reacted favourably. But its clearly time for a change of tack.

Cellnex chief executive Tobias Martinez talked up his company’s headline figures, as well he might, given that revenue in the first nine months of 2022 grew by 46 percent to €2.57 billion and adjusted EBITDA grew by almost the same amount to €1.94 billion.

“This gives us confidence in our targets for the year,” Martinez said, glossing over the fact that Cellnex inched down its full-year revenue, earnings and cash flow outlook due to the “the effect of the completion, later than initially planned, of the transaction with CK Hutchison in the United Kingdom.”

That deal, which marks the completion of the firm’s €10 billion pan-European towers mega-buy, closed on Friday, almost two years to the day after it was first announced. Cellnex forced it over the line with UK regulators by agreeing to sell around 1,000 of the 6,000 towers it would pick up in the market to Wireless Infrastructure Group (WIG) late last month.

While that’s obviously good news for Cellnex, Martinez made it clear that those kinds of big merger and acquisition moves are now a thing of the past.

“Let me underline as well that while keeping our 2025 guidance, we are reinforcing our focus on our balance sheet, and as an expression of this we are committed to securing Investment Grade status (BBB- rating) from S&P,” he said.

That means using free cash flow to bring down leverage, and securing a lower cost of debt, something that will be more challenging in the current economic environment than it might once have been. And naturally, that approach is incompatible with throwing more cash at big buys.

We heard similar from Cellnex earlier this year, when Martinez indicated that big deals were likely off the table for the next couple of years, his comments coming in the wake of the company’s failure to broker a deal with Deutsche Telekom for its towers portfolio in Germany and Austria. But since then the firm has been linked with another big European towers transaction, namely Vodafone’s sale of a big chunk of Vantage Towers.

Maybe that deal was simply too good pass up, or maybe Cellnex’s involvement in the process was overblown. Either way, it didn’t do a deal with Vodafone and is now even clearer that it’s focus is on organic growth.

“In the medium term…we see further momentum coming from our plans to build more than 21,000 new sites by 2030 for our existing customers, as well as significant potential in key growth areas,” Martinez said. “We expect sustained demand in Fibre-to-the-Tower, DAS, transport connectivity projects, edge data centres, as well as RAN sharing projects as highlighted by our agreement with Polkomtel in Poland.”

Essentially, Cellnex is still looking to grow, and it is well-placed to capitalise on the market opportunities it outlines, thanks to an ambitious expansion strategy to date. But we will likely hear its name mentioned a lot less when the rumour mill swirls up its next towers transaction.

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