Cellnex Earnings: Italy and Portugal Remain Bright Spots; Weak Colocation In the Rest of Its Markets

Narrow-moat Cellnex met its full-year guidance, with revenue of EUR 3.7 billion and free cash flow of EUR 150 million. The firm reported EBITDA after leases for the first time, which we view as favorable as it is a better reflection of economic reality for a tower firm than EBITDA. Its EBITDAaL grew by 17% for the full year compared with revenue growth of 15%, suggesting little margin expansion. Although Cellnex tenancy ratios are improving in selected locations like Portugal and Italy, which is good for margin expansion, organic colocation remains very weak in markets like Austria, Sweden, and Ireland. Cellnex’s build-to-suit programs remain intense, with 4,473 new tower sites in 2023, which also creates dilution in tenancy ratios. The group’s tenancy ratio has improved to 1.39 tenants per tower compared with 1.35 one year ago, mainly driven by improvements in Italy and Portugal. We assume Cellnex’s tenancy ratios will improve gradually to around 1.8 times by the end of the decade, resulting in a steady EBITDAaL margin improvement. We maintain our EUR 52 fair value estimate.