European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<a href="https://www.smartkarma.com/entities/cellnex-telecom-sau" target="_blank" data-smartkarma-citation="entities:21258:1" rel="noopener">Cellnex Telecom Sau (CLNX SM)</a> has closed a transformational operation, valued at around €10 bn, which has allowed it to reach over 103,000 telecommunications towers (vs. the prior 73,000) and strengthen its leadership position in Europe. The company has met its expansion objectives, even earlier than planned (December 2021). A capital increase has not been necessary, although it has run out of ammunition for future acquisitions.
It is difficult to overstate the importance of the purchase. It represents an earthquake in the European market for telecommunications towers, which now has a colossus, far away from any other potential European player.
<ul class="">
<li>Since its IPO in 2015, Cellnex has invested c. €26 bn in acquisitions.</li>
<li>After the pact, Cellnex's footprint extends to twelve countries. Spain (where Cellnex is based), with its 11,000 towers, is now only the fifth market in number of towers (and represents only 10% of the total footprint) behind Italy (24,500) , United Kingdom (14,700), France (13,700) and Poland (11,900).</li>
<li>This operation is unique due to its size and transformative nature: it involves raising the number of towers by 41%, revenue by 46% and backlog by up to 63%, long-term insured revenue.</li>
</ul>
A capital increase was not strictly necessary to purchase the Hutchison Towers. The company had cash available of more than €8 bn. However, the net debt/EBITDA approaches 6x and therefore Cellnex runs out of ammunition for future acquisitions. I do not rule out that Cellnex pays future purchases with its own shares.
Taking an average of DCF valuation and multiples, my TP is €64.36 per share, which implies an upside of 20% to the last closing price. Therefore my recommendation is LONG Cellnex.
<ul>
<li>The dividend yield is low because Cellnex is in an accelerated expansionary phase. However, the generation of recurring cash implies a profitability of more than 5% as of 2022e.</li>
</ul>

Cellnex Telecom Sau (CLNX SM) has closed a transformational operation, valued at around €10 bn, which has allowed it to reach over 103,000 telecommunications towers (vs. the prior 73,000) and strengthen its leadership position in Europe. The company has met its expansion objectives, even earlier than planned (December 2021). A capital increase has not been necessary, although it has run out of ammunition for future acquisitions.
It is difficult to overstate the importance of the purchase. It represents an earthquake in the European market for telecommunications towers, which now has a colossus, far away from any other potential European player.

Since its IPO in 2015, Cellnex has invested c. €26 bn in acquisitions.
After the pact, Cellnex's footprint extends to twelve countries. Spain (where Cellnex is based), with its 11,000 towers, is now only the fifth market in number of towers (and represents only 10% of the total footprint) behind Italy (24,500) , United Kingdom (14,700), France (13,700) and Poland (11,900).
This operation is unique due to its size and transformative nature: it involves raising the number of towers by 41%, revenue by 46% and backlog by up to 63%, long-term insured revenue.

A capital increase was not strictly necessary to purchase the Hutchison Towers. The company had cash available of more than €8 bn. However, the net debt/EBITDA approaches 6x and therefore Cellnex runs out of ammunition for future acquisitions. I do not rule out that Cellnex pays future purchases with its own shares.
Taking an average of DCF valuation and multiples, my TP is €64.36 per share, which implies an upside of 20% to the last closing price. Therefore my recommendation is LONG Cellnex.

The dividend yield is low because Cellnex is in an accelerated expansionary phase. However, the generation of recurring cash implies a profitability of more than 5% as of 2022e.


Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Last Week in Event SPACE: NTT Docomo, Car, Sunac Services, Evergrande, Jardine Cycle, PRC Antitrust

Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

*Another Weak Set Of Metrics: Link REIT (823.HK) [Link REIT] reported negative FY 1H21 bottom-line results of HKD 4.1 bn. While still a loss, this figure represents about 17.2% of losses (HKD 23.9 bn) posted in FY 2H20. Losses in both periods were attributed to negative fair value marks of HKD 7.3 bn and HKD 27.6 bn, respectively. While results on an operating basis were positive, the trend unfortunately remains negative for Link REIT – declining HKD 564 mn (15.1%). The poor operating results were driven by weaker Hong Kong rental income which declined HKD 186 mn (5.4%) HOH; and a HKD 55 mn (9.8%) decline in mainland Chinese property-related revenues;*Worries Abound: Weaker than expected Hong Kong retail operations leading to lower level of rental reversions; and continued negative revaluation of property due to lower rents and/or higher cap rates remain long-term risks; and*Poor Capital Management: On July 26, 2020, Link announced its proposed acquisition of a Grade A office building, The Cabot at 25 Cabot Square at Canary Wharf in London. This transaction makes little sense for Link REIT on a number of levels. Management also reiterated its 2025 target, suggesting that intends to add to the existing "core" portfolio while adding "core-plus" and "value-add" assets, which would include mainland Chinese Tier-1 cities, the United Kingdom, Australia, Singapore and Japan. Link REIT has also completed the 60 mn share buyback. Instead of weighing a buybacks return versus new investment ROI, management views share buybacks as a mechanism to defend its shares against short-selling.

*Another Weak Set Of Metrics: Link REIT (823.HK) [Link REIT] reported negative FY 1H21 bottom-line results of HKD 4.1 bn. While still a loss, this figure represents about 17.2% of losses (HKD 23.9 bn) posted in FY 2H20. Losses in both periods were attributed to negative fair value marks of HKD 7.3 bn and HKD 27.6 bn, respectively. While results on an operating basis were positive, the trend unfortunately remains negative for Link REIT – declining HKD 564 mn (15.1%). The poor operating results were driven by weaker Hong Kong rental income which declined HKD 186 mn (5.4%) HOH; and a HKD 55 mn (9.8%) decline in mainland Chinese property-related revenues;*Worries Abound: Weaker than expected Hong Kong retail operations leading to lower level of rental reversions; and continued negative revaluation of property due to lower rents and/or higher cap rates remain long-term risks; and*Poor Capital Management: On July 26, 2020, Link announced its proposed acquisition of a Grade A office building, The Cabot at 25 Cabot Square at Canary Wharf in London. This transaction makes little sense for Link REIT on a number of levels. Management also reiterated its 2025 target, suggesting that intends to add to the existing "core" portfolio while adding "core-plus" and "value-add" assets, which would include mainland Chinese Tier-1 cities, the United Kingdom, Australia, Singapore and Japan. Link REIT has also completed the 60 mn share buyback. Instead of weighing a buybacks return versus new investment ROI, management views share buybacks as a mechanism to defend its shares against short-selling.

Last Week in Event SPACE: Prosus/Naspers, GMO Internet, CK Hutchison, AviChina, Ant Group, Tonly

<a href="https://www.smartkarma.com/entities/ck-hutchison-holdings-ltd" target="_blank" data-smartkarma-citation="entities:132:1" rel="noopener">CK Hutchison Holdings (1 HK)</a> has <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1104/2020110400676.pdf" target="_blank" rel="noopener">announced</a> it is at an advanced stage of negotiations with <a href="https://www.smartkarma.com/entities/cellnex-telecom-sau" target="_blank" data-smartkarma-citation="entities:21258:1" rel="noopener">Cellnex Telecom Sau (CLNX SM)</a> for the disposals of its telecommunications infrastructure assets in Europe.
Subject to the finalisation of definitive documentation, total proceeds on completion of the transactions are ~€10.0bn, including minority partners’ share. The headline transaction price mirrors that rumoured a week ago in the media, and accounts for ~24% of CKH's NAV.
The announcement follows the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1026/2020102600071.pdf" target="_blank" rel="noopener">news</a> last week that CKH will reduce its exposure to <a href="https://www.smartkarma.com/entities/husky-energy" target="_blank" data-smartkarma-citation="entities:22923:1" rel="noopener">Husky Energy (HSE CN)</a> in a deal with <a href="https://www.smartkarma.com/entities/cenovus-energy-inc" target="_blank" data-smartkarma-citation="entities:24253:1" rel="noopener">Cenovus Energy Inc (CVE CN)</a>.
CKH is trading cheap at a 46% discount to NAV after this morning's ~8.9% share price gain. The implied stub, net of all listed holdings, remains near the -2STD level, based on share prices since the reorganisation of Cheung Kong in <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2015/0603/ltn20150603277.pdf" target="_blank" rel="noopener">June 2015</a>.
For those waiting for a catalyst to enhance/unlock shareholder value, this is it.

CK Hutchison Holdings (1 HK) has announced it is at an advanced stage of negotiations with Cellnex Telecom Sau (CLNX SM) for the disposals of its telecommunications infrastructure assets in Europe.
Subject to the finalisation of definitive documentation, total proceeds on completion of the transactions are ~€10.0bn, including minority partners’ share. The headline transaction price mirrors that rumoured a week ago in the media, and accounts for ~24% of CKH's NAV.
The announcement follows the news last week that CKH will reduce its exposure to Husky Energy (HSE CN) in a deal with Cenovus Energy Inc (CVE CN).
CKH is trading cheap at a 46% discount to NAV after this morning's ~8.9% share price gain. The implied stub, net of all listed holdings, remains near the -2STD level, based on share prices since the reorganisation of Cheung Kong in June 2015.
For those waiting for a catalyst to enhance/unlock shareholder value, this is it. 

Hong Kong

CK Hutchison Holdings Limited holds all of the non-property businesses of the Cheung Kong Group and the Hutchison Group, including ports and related services, telecommunications, retail, infrastructure, energy, and movable assets leasing operations.

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CK Hutchison Holdings (1 HK)

Cellnex's Transformational Acquisition

The purchase represents an earthquake in European telco towers. An average of DCF and multiples gives a TP of €64.36 per share, which implies an...

Jesus Rodriguez Aguilar

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The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

Link REIT – Bread and Butter Melting

LINK REIT: Almost Nothing Is Going Right For Link REIT. Rental Reversion Rates Weakening In Hong Kong; FV Marks Remain Negative; and Capital...

Thomas J. Monaco

Last Week in Event SPACE: Prosus/Naspers, GMO Internet, CK Hutchison, AviChina, Ant Group, Tonly

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

CK Hutch: Here's Your Re-Rating Catalyst

CK Hutchison closes in on a Eur10bn tower sale to Spain's Cellnex, which would unlock 24% of NAV and 32% of the unlisted stub value.

David Blennerhassett

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