Q2 Underlines Cellnex Management's Discipline and Reduces a Key Risk; Story Turns Organic Now

Apart from a good set of results, which indicate narrow-moat Cellnex could end the year in the higher part of its guided range, the most interesting insights from the second quarter came from management’s comments on the Deutsche Telekom towers unit deal and future strategy. The main reason Cellnex withdrew from the auction process was its potential inability to execute a long-term plan under Deutsche Telekom's conditions, rather than a lack of financial attractiveness, as management said the internal rate of return from the deal was actually attractive. The deal that Deutsche Telekom's towers unit has made with DigitalBridge and Brookfield includes significant protection rights and the right to regain control of the asset in future. We believe Cellnex wasn't willing to accept these conditions as the company claims to be focused on the long term, has a 30-year investment horizon, and considers control of its assets a key strategic point. More importantly, we believe this decision reduces one of the main risks we had highlighted about Cellnex in the past, which was management potentially wanting to close deals at any cost. Management also provided a pipeline of other deals the company has rejected since 2016 due to unattractive valuations or other disagreements with sellers. We maintain our EUR 52 fair value estimate and see the shares as attractive currently at this point.