United Group – Spending it wisely
All,
Please find our unchanged analysis here.
We will update our model after the results on Monday 24 April.
United Group (UG) has managed to secure a full price for its tower business. The purchaser is Tawal, a subsidiary of Saudi Telecom (owned by the Saudi Government), and owns 16k towers across MENA. Pro Forma cash paid will be €1.22bn. Our thesis is that UG will use at least some cash to fund an amend and extend operation. The cable and telecom industry is financing the rollout of 5G networks, but we have already included that cost in our modelling.
Investment Rationale:
- We bought the 4.875%/24 at 93.625% in September 22. We have earned 8% in 6 months (2.5pts of coupon and 5 points of capital gain), and will now exit this trade at 99c/€.
- We will replace this with a 3% long in the 9% Nov-24 SUNs currently trading at around 82c/€
- Results are out on Monday 24 April, so liquidity may be impossible to access today.
- BC Partners (BC) will look to either take the SSNs out or push them out maturity-wise (and pay for it). BC will not want to lose control of a €5.8bn business over <€500m of SUNs. BC spent c€1bn in acquiring this asset in 2018 and has supported growth in assets including the investment in Wind Hellas.
The price is right:
- UG is selling 100% of its Towers business to TAWAL. The estate comprises 4,800 towers/masts. The EV is €1.22bn, which equates to €254k per tower or c20x 2022 EBITDA. We are modelling an additional €50m per annum of lease costs.
- The recently announced sale of the VMo2 stake in the CTIL towers business is expected to price at around €240k per tower. The £750m valuation for VMo2’s 25% stake in CTIL looks about right, albeit with at most £50m of upside.
- The average price for Tower assets in recent years is just under €250k per tower. This price is well beneath the USD600k+ seen in the US.
Immediate deleveraging:
- Pro forma leverage at UG falls from 6.9x to 5.8x. This includes the additional €50m per annum of additional lease costs.
- The use of proceeds has not been confirmed, but as we say elsewhere, we expect some cash will be used to support an amend and extend operations.
- Cash on hand will be near to €1.3bn.
How best to spend the money:
- Pushing out maturities: Between now and Feb-26, UG has €2.2bn of SSNs and nearly €500m of SUNs to refinance by November-25. Both will have to be dealt with simultaneously.
- We expect some form of amend and extend operation from UG.
- There is capex needed for 5G, which is factored into our model.
I look forward to discussing this with you all.
Aengus
T: +44 203 744 7055