Importance Score: 72 / 100 🔴
Mobile Penetration in Sub-Saharan Africa Set to Surpass 50%
Despite rapid growth in the telecommunications industry, a significant portion of the population in Sub-Saharan Africa, home to approximately 1.3 billion people, still lacks access to mobile services. However, industry data indicates a turning point, with predictions suggesting that mobile penetration is poised to exceed 50% this year. This expansion is largely fueled by the liberalization of the telecoms sector and increased competition driving down prices, making mobile infrastructure and connectivity more accessible across the region.
Helios Towers, a FTSE 250-listed company, has been a key player in this growth narrative. The company has reported a decade of consistent double-digit adjusted EBITDA growth, directly benefiting from the expansion of mobile networks in the region.
Helios Towers: Driving Mobile Infrastructure Expansion
Helios Towers specializes in building, owning, and operating essential telecoms infrastructure. Their clientele includes major mobile network operators in Africa and the Middle East such as Airtel Africa, Vodafone, Orange, and Axian. The company holds a dominant market position, leading in seven out of its nine operational countries with market shares ranging from 30% to 60%.
With a portfolio of over 14,000 towers spanning the Middle East and Africa, Helios Towers achieved a significant milestone last year by becoming cash flow positive. Looking ahead, management is considering returning capital to investors through dividends or share buybacks, potentially starting in 2026.
Growth Strategy and Market Outlook
Tom Greenwood, Chief Executive of Helios Towers, expressed enthusiasm about the company’s prospects, stating, ‘It’s a very exciting time for the business and investors. Our markets have some of the lowest mobile penetration globally, yet exhibit the highest growth rates.’ He highlighted the exponential surge in data consumption and subscriber growth in the region.
Greenwood further elaborated on the anticipated demand for mobile infrastructure, noting, ‘Data usage is projected to quadruple across our operating region in the next five years. This surge will necessitate increased mobile infrastructure, directly boosting our revenue. We possess the operational capabilities to generate substantial value for both our customers and investors.’
Strategic Shift Towards Tenancy Growth
Helios Towers announced adjusted earnings growth of 13.8% for 2024, reaching $421 million, and projects further growth to between $460 million and $470 million this year. This positive trajectory coincides with the implementation of their new ‘2.2x by 2026’ strategy.
This revised strategy prioritizes tenancy growth through ‘colocation,’ which involves adding multiple tenants to existing towers, over significant investment in constructing new towers. Helios anticipates adding 2,000 to 2,500 tenancies this year, maintaining a tenancy ratio of 2.1x, with the objective of achieving its 2.2x target by 2026.
Analyst Perspective on Helios Towers’ Strategy
Analysts at Berenberg commented on Helios Towers’ strategy, noting, ‘We believe the group can generate exceptional incremental returns on capital by increasing tower utilization – accommodating more tenants per tower – thereby creating substantial operating leverage.’
To ensure stable returns, Helios Towers employs power and inflation escalators, enabling them to adjust pricing for customers in response to rising costs. Furthermore, the company mitigates risks associated with volatile local currencies, such as the Nigerian naira, by denominating approximately 70% of its earnings in stable currencies like the US dollar.
Deutsche Bank analysts emphasize that tenancy growth remains the primary driver of Helios Towers’ expansion, highlighting the company’s effective measures to insulate itself from inflation and foreign exchange risks.
Mobile Services: An Essential Service Amidst Instability
During a recent earnings call following Helios Towers’ annual results, investors raised concerns about the implications of regional conflicts, particularly in areas where the company operates, such as the Democratic Republic of Congo (DRC).
Despite these concerns, CEO Tom Greenwood expressed confidence regarding the resilience of mobile services. He stated, ‘Mobile services are critical globally, and even more so in Africa due to limited availability of fixed-line or fiber infrastructure. Mobile is frequently the sole means of communication for many people, making uninterrupted service essential.’
Greenwood reassured investors by adding, ‘We have operated for 15 years, with a long-standing presence in the DRC. Services continue to function in all situations, serving millions of individuals, humanitarian organizations, NGOs, and all who rely on our infrastructure.’
Debt Reduction and Financial Stability
Investors have also noted Helios Towers’ net debt, which exceeds $1.7 billion. However, the company is actively reducing its leverage. Helios Towers’ net leverage ratio has decreased to 4x, a 0.4x year-on-year reduction, and is projected to further decline to 3.5x and 3x in 2025 and 2026, respectively.
Greenwood explained, ‘Telecom towers businesses typically benefit from long-term customer contracts, resulting in predictable and robust cash flow streams. Industry leverage ratios generally range from 3x to 8x, and we are positioned at the lower, more comfortable end of this spectrum.’
Stock Performance and Analyst Ratings
Helios Towers shares experienced a gain of over 15% in the year preceding market volatility in April. While the stock has seen minimal movement since the start of the year, adding just 0.2%, it has declined approximately 30% over the past five years. Currently trading at 94.5p, analysts suggest significant upside potential for Helios shares.
Berenberg has set a target price of 175p for Helios Towers, indicating potential upside of around 85%. Deutsche Bank is even more optimistic, with a target price of 255p.