MoffettNathanson’s Nick Del Deo feels Crown Castle is unique among towercos in that a large chunk of its portfolio, one third by revenue and one quarter by EBITDA, is derived from assets other than towers. Del Deo said the dynamics for small cells and fiber solutions are quite a bit different than for towers.
“While its reports generally haven’t included large deviations for these units, the fiber solutions unit only reached a material size in the past couple of years,” he said.
“[Yesterday’s] results certainly qualify as interesting. Crown Castle’s headline results look like a beat and raise, but there are other factors at play that take the sheen off.”
Del Deo said the company bumped up its tower leasing forecast, but simultaneously cut its fiber solutions and small cell forecasts, which in tandem with slightly higher tower churn netted to a $21M reduction in expected 2019 cash site leasing revenue.
“But the change in the tower leasing forecast drove an enormous swing in the expected network services contribution, which in tandem with straight-line pushed the consolidated top line forecast up slightly and expected EBITDA up more than a percent,” Del Deo stated in the investor report.
“Higher network services gross margin and lower interest expense drove a similar AFFO improvement. While the expectation of higher tower activity is welcome news, the fiber solutions and small cell cuts raise important questions, and the low quality beat and raise should be discounted accordingly,” Del Deo wrote.
CCI reported solid Q2 2019 results with strong macro activity, according to Wells Fargo Senior Analyst Jennifer Fritzsche. The good news, she said, is tower leasing activity is very strong, highest than more than a decade, which she said should bode well for AMT and SBAC.
“The not great news, as it is, ‘straining the response time’ to deploy small cells given the elongating municipal lead times,” she said. ”Thus longer construction timelines are longer than CCI had guided to in Q1. As a result, this will reduce the planned small cells build to low end of the prior range (10K in 2019 vs. 10-15K prior). Importantly – this is NOT a function of lower demand more just factors outside its control…bottleneck at municipality level.”
These two factors, Fritzsche said, result in a reduction in the expected Organic Contribution to Site Rental Revenues versus previous guide – higher contribution from towers, “but should be offset by lower expected contribution from both small cells and fiber solutions. CCI reiterated plans to grow dividend per share growth of 7 percent to 8 percent per year,” she said.
July 19, 2019
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