African phone-mast IPO priced for smooth safari - Reuters

Relay antennas are seen near Gross-Gerau, Germany, April 25, 2019. REUTERS/Ralph Orlowski

LONDON, Oct 11 (Reuters Breakingviews) - An African operator of mobile phone masts is dialling down the hype for its second attempt at an initial public offering. If its New York listing goes ahead this week, IHS could become the largest Africa-focused company on Wall Street. A market value of up to $8 billion appears designed to win over even the most sceptical investor.

Companies that manage towers for mobile telecom transmitters have become stock market darlings due to their growth prospects and predictable cash flows. Choppy markets forced IHS and regional rival Helios Towers to shelve listing plans in 2018. The smaller Helios (HTWS.L) completed an IPO in London the following year; shareholders who bought in have enjoyed an annualised return of 18%, including dividends.

IHS Chief Executive Sam Darwish is keeping his feet on the ground, though. Including debt, U.S. and European operators like American Tower (AMT.N) and Cellnex Telecom (CLNX.MC) are worth over 20 times their forward EBITDA. Helios trades on 13 times, reflecting the continent’s elevated political, credit and currency risk. Operating towers in the Kalahari Desert or East African savannah also involves the additional hassle of installing power generators and solar panels.

IHS transmits similar risks. More than half its 30,000 towers are in Nigeria, the continent’s most populous nation but also one of its most turbulent. Oil accounts for around 80% of Nigerian exports, making its currency prone to devaluations. Its government also has a habit of shaking down foreign-owned companies, as South African mobile phone giant MTN (MTNJ.J) – IHS’s main shareholder - can attest.

This fuzzy signal is reflected in IHS’s valuation. If its adjusted EBITDA keeps growing at the same 21% compound annual growth rate of the past four years, it should reach around $1 billion this year. At $24 per share – the top end of the published price range – its enterprise value would be nearly $10 billion, after factoring in nearly $2 billion of net debt. That suggests a modest 10 times multiple and a discount to both Helios and Cellnex, even though all three firms generate about $30,000 of EBITDA per tower.

Given past disappointments, Darwish is wise not to be too greedy. He will be hoping to emulate the decent post-IPO performance of Helios and African online retailer Jumia Technologies , which also listed in 2019. If he succeeds, investors will enjoy a pleasant safari.

Follow @edwardcropley on Twitter

CONTEXT NEWS

- Africa-focused mobile phone tower company IHS said on Oct. 3 it was preparing to list its shares on the New York Stock Exchange.

- The company operates 30,000 masts, of which more than half are in Nigeria. It is offering 22.5 million shares, of which 18 million is new stock and 4.5 million are being sold by existing shareholders. The underwriters of the initial public offering also have an option to purchase an additional 2.7 million new shares and 675,000 shares from existing investors. The shares will be priced between $21 and $24 each.

- IHS generated adjusted EBITDA of $819 million in 2020 on revenue of $1.4 billion. In the first six months of 2021, adjusted EBITDA was $490 million while revenue was $764 million.

Editing by Peter Thal Larsen and Karen Kwok

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.

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