Towers: Punish Them For Growth or Reward Them for Durability?

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While U.S. organic tower growth is likely to again accelerate in 2019, the magnitude of that growth has and likely will continue to underwhelm, according to Colby Synesael at Cowen Equity Research.

“For example, Crown is expected to grow just ~4.8% which is similar to 2018 while we expect SBA to guide to ~5.2% vs. 5.0% in 2018. In both cases modestly higher leasing will be partially offset by a slight increase in churn,” Synesael said in the Cowen Report.  “While we expect American to guide to “>7% organic billings growth” in 2019, this is in-line with 2018 guidance and appears to be benefitting from a “double-escalator” leasing construct with Verizon.”

In American’s case, this isn’t at all bad, but the Cowen Report findings suggest that it’s not likely to be sustained (potentially beyond 2019) or repeated by Crown/SBA. At its fundamental core, the levels of growth seem to suggest that the U.S. tower business, at least for the large incumbent players, has reached a level of maturity and that 5G is unlikely to generate the same growth levels seen in circa-2013 driven by 4G buildouts.

“One could argue however that we’re still early and that massive-MIMO and other 5G equipment is still yet to be meaningfully deployed, however in our view the carriers are likely to fund such investments within their current capex budgets and further will need to do so while also allocating a growing portion of their budget to small cell builds,” Synesael said.   

Against this backdrop, the towers had by all accounts, a solid 2018, the Cowen Report found. AMT was up 11% including +9% in Q4; CCI was down 2% including -2% in Q4; and SBAC was down 1% including +1% in Q4; whereas the S&P 500 was down 6% including -14% in Q4.  This would mean then, that in a bear or flat market, towers are likely to outperform, whereas in a bull market they would likely underperform.

“Still that doesn’t mean that in a bull market they would be bad investments, but rather one needs to be sensitive to what you are playing for,” Synesael said.

January 21, 2019

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