Australia | Jul 03 2007
By Chris Shaw
Macquarie Communications Group (MCG) has continued to expand its global asset base and has entered the US market via the acquisition of a 29% stake in the US company Global Tower Partners as part of a consortium of investors.
The move has not sparked much in the way of changes to forecasts, most brokers covering the stock seeing the deal as too small on its own to have any great impact. Citi and GSJB Were have both taken such an approach, making no adjustment to earnings estimates given on Were’s estimates the deal will only form around 3% of group EBITDA (earnings before interest, tax, depreciation and amortization).
The broker does note the company being acquired has a good track record of growing its asset base, having increased its portfolio from 500 to 2,500 towers over the past three years, making it a good strategic acquisition in its view. It does suggest though the asset will need to achieve strong earnings growth to justify the multiple being paid, so it appears MCG didn’t particularly strike a bargain with the deal.
Merrill Lynch agrees, seeing the deal as a bit rich given the company had to pay an EBITDA multiple of 26.6x FY07 earnings while MCG itself trades on around 15x EBITDA. The broker’s US analysts expect solid growth from the assets, but this doesn’t necessarily justify the price paid in its view.
One mitigating factor is the potential for further deals in the US tower market, which could help the deal to stack up more attractively longer-term. Credit Suisse agrees with this view, suggesting strategically the deal was a good one as it gives the company a North American growth platform.
Merrill’s voices one concern about the strategy management are employing in that the deals being made, Global Tower Partners included, are requiring structural enhancement to be accretive in the short-term as there is a gap until they are simply earnings accretive in their own right.
It suggests shareholders would prefer deals that were immediately accretive without the need for any complex structures, but to date it is prepared to give management the benefit of any doubt and so retains its positive rating.
It is not alone in this regard, as the FNArena database shows MCG is rated Buy or Outperform six times compared to one Hold rating and one Avoid recommendation. Most of the ratings reflect the view earnings will be some time coming, Credit Suisse pointing out its rating is based on the potential valuation upside the stock offers at current levels.
The average price target for the company is $7.09, which compares to a median price target according to Thomson One Analytics of $7.25. Shares in MCG today are lower despite a stronger overall market and at 11.50am were down 16c at $6.17.