African phone-mast IPO priced for smooth safari

IHS Holding

11/10/2021 09:30

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are his own.)
    By Ed Cropley
    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  JMIA.K , which also listed in 2019. If he
succeeds, investors will enjoy a pleasant safari.
    Follow @edwardcropley https://twitter.com/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.
    
 

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
IHS Holding eyes near $8 bln valuation in U.S. IPO   
 urn:newsml:reuters.com:*:nL4N2R01P4
IHS IPO launch    https://www.ihstowers.com/support-and-info/media/press-releases/2021/ihs-holding-limited-launches-initial-public-offering
U.S. S-1 filing     https://www.sec.gov/Archives/edgar/data/1876183/000110465921122266/tm201525-19_f1.htm#tCAP
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Editing by Peter Thal Larsen and Karen Kwok)
 ((For previous columns by the author, Reuters customers can
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 | ed.cropley@thomsonreuters.com; Reuters Messaging:
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