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American Tower Corporation Message Board

  • slim_niceguy slim_niceguy Jun 15, 2003 2:46 PM Flag

    JM2421???

    I as pleased to hear that you own all four of
    the tower companies because it gives me the opportunity to as your opinion on SBAC.

    My take is that I believe there has been value added to their portfolio as a result of their very long-(For the industry), involvement in
    site development. I can't help believing that there may by many many gems in the remaining concentrated eastern U.S. portfolio.

    I also feel they still are too committed to services and of course their cost of capital is obscene.

    How do you think it plays out for them over the next year? A call in of the 12% on Mar. 1
    nearly a certainty?

    Would you analyze it in similar fashion to your earlier post regarding this equity?

    Slim

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    • Well, it's a lot more complicated than this, but here are some simple numbers against which you can make your own decisions. SBAC is going to generate just under $70mm of EBITDA this year (says the company), against debt of just under $800mm. If they can double EBITDA over the next five years (implying about 15% EBITDA growth - a target some might call overly optimistic, but I believe a rational, conservative investor can support that as an outcome somewhere near the middle of the distribution curve), they will have about $140mm of EBITDA, against debt of about $700mm (they will have paid down some), costing them something less than $70mm/year. Maintenance capex will probably be about $10 to $15mm, and there still won't be any taxes paid. Free cash flow to the equity will correspond fairly well to EBITDA, less interest, less maintenance capex, assuming they are the exact same company they are today (and there's a case to be made management will be able to add more value over time than simply lowering the cost of debt). So call it something slightly more than $50mm of FCF, a number that will still be growing by around 10%/year, assuming the only remaining revenue growth comes from escalators. The credit profile will be much more attractive, so the equity might realistically be priced at a 6 or 7% FCF yield, assuming an interest rate environment that is not wildly removed from the U.S. long-run average (i.e. much higher long-rates than today). This would imply about $750mm of equity, against what will probably be close to 60 million shares (assuming dilution only from options), or a value of about $12.5/share. You can make a case this is a four year target, not a five year target, if the equity is valued on a 6% FORWARD FCF yield. So the potential returns (from $3 to $12.50 in four years - 43% CAGR), given greater leverage, are much more attractive than with AMT, but the risks are obviously higher, too. For example, if EBITDA growth is only 9% (also a very possible outcome, depending on how the wireless industry progresses, and a level of growth that corresponds roughly to Jim Ballen's targets for AMT and CCI), FCF to the equity would likely be only marginally positive, and the company would likely have had to restructure, wiping out the equity.

      Obviously, you have to believe that their strategy of being primarily builders (as you said) will contribute to their maintaining industry leading growth in tower revenue, and therefore being able to hit the higher growth targets.

      BTW, for what it's worth, and just so this doesn't come across as too dour - I believe the last 18 months in the wireless industry has seen an aberationally loow, and unsustainable, rate of capacity addition, and there is a strong case to be made that lease-up growth will accelerate modestly over the next few years, meaning SBA might hit slightly more than 15% growth. I am a big believer in this business, and own all four of the public tower cos.

 
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