Helios Towers (LON: HTWS) shares are up 4.5% in London this morning on the back of the Q1 2022 results. Helios owns telecoms towers in Africa. This might seem like a slightly odd, even recondite, business but it has its merits.
The structural situation is that there are, near everywhere, several mobile telecom providers. Each of which needs to be able to situate cells and repeaters and so on. There’s a certain logic in the idea that the varied different services might share the towers for a particular area. On the other hand no one company would really like to depend upon a direct competitor for the provision of that place to put the kit that makes the system work.
So, over the years we’ve ended up in the advanced markets with “tower companies”. These own and or construct the towers, then rent or lease space on them to the different companies. That way the actual mobile companies can share the capital cost of the tower etc, without having to worry about that direct competition owning something so essential.
As the technologies advance, 3G to 4G and now 5G, the size of the cell decreases – that means more such “towers” are required. The inverted commas are because not all of them are in fact towers but it’s a generic name now for where kit is placed.
Add in that coverage is not complete in immature markets as in Africa and this gives us the dual nature of Helios Towers. There’s both that mature seeming business of simply renting out tower space to mobile companies for fixed payments. But there’s also expansion possibilities given both the move to saturation coverage and also the advance in tech and smaller cell areas.
Helios Towers is approaching this with a mixture of organic and acquisition growth. Acquisitions to enter a national market then additional organic growth from such a footprint. The results here for Helios are 23% YoY revenue growth, 20% adjusted EBITDA growth. This is the result both of acquisition to move into new national markets and also of organic tenancy growth.
Telecoms towers seem like a rather boring business sector but that structural change – operators divesting of the towers themselves to such specialists – and also both the market expansion and technical changes in cell sizes make it a significant growth opportunity.
Helios is, that is, in an interesting market sector. That does not mean that Helios shares are definitely a buy, of course not. For there’s also the skill with which management exploits the opportunity to consider. Plus, as many have found before, maintaining infrastructure in Africa can be a difficult thing to do.
A reasonable view of Helios would be that it’s in an interesting a duel faceted market. Decisions on trading positions will depend upon how well it’s going to be exploited, not the issue of the marketplace itself.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.