Cellnex Earnings: New CEO Understands the Tower Business Model and Changes the Narrative

The main highlight of Cellnex's second-quarter earnings is the new narrative by CEO Marco Patuano after only 60 days in charge. For a long time we've talked about Cellnex's opportunity to make its tower portfolio more efficient (tenancy ratio of 1.37 times compared with Inwit at 2.2 and Vantage Towers at 1.46), but we're still waiting for this opportunity to materialize. Acquisitions aside, in recent years Cellnex put more focus on deploying new towers (build-to-suit towers) for mobile operators rather than co-locating them in existing ones. Newly deployed BTS towers, which normally come at a tenancy ratio of 1 times, generate returns that match Cellnex’s cost of capital, but don't expand it. The beauty of the tower model is to co-locate new tenants in existing towers as revenue increases significantly while costs hardly go up, expanding profit margins substantially. We noticed a shift in its narrative to co-location in the July 27 earnings call, which is “free” growth for Cellnex (little investment needed). We maintain our EUR 52 fair value estimate with shares up 5% on July 28 and trading at EUR 38.