Sector Flash - Telecoms: Current themes in the mobile infrastructure and equipment sector

  • In this paper, we look at the mobile infrastructure and equipment market with a focus on recent deals and our take on current trends.
  • European tower infrastructure market: The landscape has changed due to the arrival of American Tower and the IPO of Vantage. While fears of increasing competition are mounting, we believe that these will not be material in the short term.
  • Mobile RAN equipment market: 5G rollout will continue at a high pace in 2021, reaching a peak in 2023-24 supported by data volume expansion and driven by Asia, but acceleration is also expected in Europe after pandemic-induced slowdown in 2020. The topic of Open RAN is attracting interest but we believe that we are at too early a stage to draw conclusions as to how this will play out in the long run.
  • Cellnex (Hold): We believe that Cellnex will retain its competitive advantage over its peers, mostly due to its independence from telcos and its partnership-like approach to acquisitions that differentiates it from the real-estate-manager model of American Tower. On its senior curve, we prefer the CLNXSM 4/25, trading at a Z-spread of 92bp; at the long end, we prefer the CLNXSM 6/29, trading at a Z-spread of 176bp and offering a pickup of 30bp over the slightly shorter INWIM 10/28.
  • INWIT (Hold): We regard INWIT as a more static player than Cellnex, although this could become an advantage in times of market correction. INWIT is well positioned to achieve its leverage target of 4.6x in 2023. We prefer the shorter INWIM 7/26, which is trading at 115bp, while the INWIM 10/28 is less attractive given that it trades 30bp tighter than the CLNXSM 6/29.
  • Ericsson (Sell): While we believe that Ericsson is better positioned than Nokia from a strategic perspective, we do not see much room for further outperformance of its only EUR-denominated bond, which trades tight at a Z-spread of 47bp.
  • Nokia (Buy): 2021 will be a “reset” year, with margins affected by restructuring and investments in R&D. In our view, this will delay an upgrade to IG to 2023 but upwards pressure might materialize already in 2022. Spreads are attractive on a relative-value basis and we are therefore keeping a buy recommendation. 2021 will likely remain subject to volatility and we would take advantage of further price dips. We prefer the NOKIA 3/26 trading at a Z-spread of 114bp.

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