According to MoffettNathanson market analyst Nick Del Deo, it’s hard to find a better business anywhere across the broader telecom landscape than tower leasing, especially domestic tower leasing on well-sited towers with quality underlying leases.
“This is hardly a secret anymore,” Del Deo said, “but the market has increasingly been assigning valuation multiples to the stocks that reflect their warranted valuations. Just think about the perpetuity value of a series of cash flows: with r – g in the denominator, a WACC of about six percent, historical net growth in the mid-single digit range, and a base escalator absent any new leasing of about three percent, what does that say an appropriate tower multiple is?
Well, it says it’s pretty high,” he said.
SBA strikes Del Deo as best-positioned among the Big Three to weather a scenario where things don’t play out exactly as expected. It should experience declining M&A-related churn, he said, whereas American Tower’s should increase.
“Its business is not diluted by a cyclical fiber unit like Crown Castle’s,” he said. “Its overseas assets are generally in better markets than American Tower’s, and it has less true emerging market exposure. Its dividend, currently small, will be easier to grow at an outsized pace, and gives it more room to reduce debt using internal cash flows if needed.”
Colby Synesael, analyst with Cowen, called SBA’s 3Q19 results “solid” citing upside revenue driven by higher services revenue (low margin) which drove slight upside to EBITDA and AFFO/share. In addition, Synesael said the company raised its 2019 revenue guidance by +$10MM at the midpoint (given higher services revenue) and its AFFO/share guidance by $0.02 at the midpoint due to a lower share count (given the buyback in 3Q19). Domestic net organic growth increased to 5.9 percent (5.6 percent in 2Q19) and was the highest level since 2Q15 as domestic churn remained flat at 2.7 percent Q/Q. Domestic New Leasing Activity was ~$17.6MM and was up ~$1MM Q/Q although Cowen would point out that guidance implies a 4Q19 step-down as management noted it saw a slowdown in T-Mobile/Sprint activity at the end of 3Q19.
Robert Gutman with Guggenheim said one of the key takeaways for SBA was as domestic leasing momentum continued in 3Q, management “has seen declining new order activity driven by timing uncertainty for the S/TMUS deal – which will likely impact growth in 1H20.” In addition, Gutman said while international leasing remains strong, and management is encouraged on the recent acquisition of Atlas Towers, a weakening BRL continues to present an incremental headwind.
“The company has been gearing up for an opportunity in the CBRS band with increasing property rights and making a minority investment in Federated Wireless,” Gutman said. “While 2019 guidance remains effectively unchanged, we see tougher comps in 2020, compounded by the 2H19 slowdown in order activity.”
October 30, 2019