Analyst Corner: Sale of Africa tower positive for Bharti

November 27, 2014 12:33 AM

Maintain 'outperform' on Bharti Airtel with price target of R464 per share...

Maintain ‘outperform’ on Bharti Airtel with price target of R464 per share. The company announced the third tranche of its tower sale in Nigeria at $1.05 billion for 4,800 towers. The deal is likely to be in the form of a lease, with Bharti as an anchor tenant in all its towers.

While the deals would be positive for EV as it leads to net debt reduction of c.$2 billion, the estimated cash flow impact is c.$275 million on account of lease payments. We estimate net negative EV on account of cash outflow of c.$1.4 billion. The assigned multiple of 5x lease outflow is higher than the 3x EV/ebitda multiple derived from the DCF for Bharti’s Africa operations. Our calculations indicate a net positive value accretion of R11 per share for Bharti on completed tower sales. Extrapolating similar economics for the entire 15,000 towers would imply an upside of R15 per share.

Bharti announced the sale of its 4,800 towers in Nigeria to American Tower Corporation for $1.05 billion, i.e. at a total cost of $2.20 lakh per tower. This follows two Africa tower sales of 3,500 towers and 3,100 towers to Helios partners and Eaton towers, estimated at $1.5-1.6 lakh, in line with the replacement cost in respective countries. The total sale of 11,400 towers constitutes the bulk of Bharti’s 15,000 tower portfolio in Africa. We estimate the total consideration of the three tower deals at $2.1 billion.

We estimate that the Africa tower sale would be close to its replacement cost. In terms of reported numbers, the deals should not impact Bharti’s reported ebitda, as the lease payments will be below ebitda.

By Standard Chartered

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