Guggenheim Securities, LLC
Though the outlook for towers remains positive according to Robert Gutman, Director of Communications Infrastructure Equity Research at Guggenheim Securities, LLC he sees leasing activity ramping slowly through the year – reconciling broadly bullish commentary at a high level with muted near-term tower guidance. “Furthermore,” Gutman said, “we see SBAC as the best way to invest in the domestic macro-site leasing trend as AMT absorbs international churn and CCI integrates recent fiber acquisitions.”
Despite positive commentary and data points from the mobile carriers and equipment supply chain regarding new network technology spending initiatives, Gutman said the towers’ initial 2018 guidance implied little Y/Y improvement in gross organic domestic growth.
“At the midpoint, AMT is looking for 8.1% (vs. 7.9% in 2017), CCI is looking at 7.9% (vs. 7.8% in 2017), and SBAC is actually guiding to 6.8% – a small decline (vs. 6.9% in 2017). While our checks confirm rising background activity (e.g. equipment orders, network design planning, initial applications), we believe new leasing for the public tower players will likely be 2H weighted – implying a more limited 2018 revs contribution (consistent with guidance calling for steady growth),” he said.
Gutman also believes the towers are on the doorstep of a new spending cycle that should provide meaningful growth over the next few years – with extension into the next decade driven by 5G capabilities and increasing processing capacity at the edge (e.g. tower sites).
Guggenheim analysts, while remaining positive about the sector, offer “muted tower guidance” going forward. “Though not very explicit – we believe initial guidance from the public tower operators reflected the existing pace of activity and applications in the pipeline into early 1Q, and remained conservative in terms of incremental new leasing,” Gutman said. While this leaves room for upside potential from new leasing, there is limited visibility to tower operators from a timing perspective – and the 2018 revenue contribution becomes increasingly limited as this occurs later in the year (though it could be meaningfully impactful for 2019).
“From a towerco risk perspective,” he said, “there are also industry constraints in terms of resource availability (tower crews) as well as the risk of equipment delivery timing and availability.”
March 29, 2018
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