There have recently been shifts in how the Big Three towercos are thinking about portfolio construction, capital allocation, and leverage according to Nick Del Deo at MoffettNathanson. Higher costs of capital, a less favorable M&A environment, leadership refreshes, and the underperformance of certain assets (with a jolt from an activist investor) have prompted the changes, Del Deo said recently.
“SBA has indicated that it plans to take a close look at each of its assets to ensure they’re appropriately contributing to the business,” he said. “For its international assets, having scale is a prerequisite. Crown Castle’s fiber review committee is, naturally, considering what the value maximizing options may be for its fiber segment. And the company seems to be cognizant of opportunities to bolster the efficiency with which it operates. And American Tower will be allocating its incremental investment dollars toward organic growth opportunities in developed markets over M&A activity and investments in emerging markets. The pending sale of its struggling India unit highlights this shift.”
At SBA, Del Deo said there are several markets that he thinks may be jettisoned as part of this refined capital allocation framework – Canada, South America ex-Brazil, and the Philippines – and he sees capital allocation tilting toward the dividend over time.
“We continue to believe the market implied value associated with Crown Castle’s fiber segment is full,” Del Deo said. “Instead, Crown Castle may have opportunities to bolster performance via expense rationalization and efficiency programs. We don’t think material portfolio changes are likely for American Tower prospectively, but think that repurchases are likely to resume as leverage declines. Given the steady nature of these businesses and the sizes of the potential changes, however, the potential gains for SBA and American Tower are modest; Crown Castle may have a proportionately greater opportunity to improve via steps to improve operating efficiency.”
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