Cellnex Listens to Investors; the Right Capital Allocation Ingredients Have Been Put in Place

There is a lot to like in Cellnex's third-quarter results. Management has listened to investors and in a strategic update has set deleveraging as its first capital allocation priority right now. Cellnex shares have performed poorly year to date, with investors being worried about leverage, which is around 7 times net debt/EBITDA (peers at around 5 times). In the Nov. 11 update, management committed to get an investment-grade credit rating from S&P in the next 12 to 24 months. Although Fitch Ratings has a BBB- credit rating for Cellnex (investment-grade), S&P's rating remains BB+. An upgrade would allow Cellnex to access debt markets at better terms and calm investors’ concerns around leverage, in our view. Shares are up 5% at the time of writing. Although we have already commented that Cellnex is a company that can withstand high levels of debt due to its contracts and long-term cash flow visibility, we like management's focus on bringing debt down to lower levels. We maintain our EUR 52 fair value estimate, with shares still providing 35% upside.