Shares of European telecom tower operators Cellnex Telecom and INWIT rose more than 1% on Monday after Barclays upgraded both companies to Overweight, citing undervaluation despite sector challenges.
Barclays set price targets of €38 for Cellnex and €8.6 for INWIT, reflecting confidence in their long-term cash flow potential. The upgrade follows a period of underperformance, with Cellnex down 12% over the past 18 months and INWIT up 28%, compared with a 32% gain in the broader telecom sector and flat to negative returns in U.S. tower stocks.
Analyst Maurice Patrick at Barclays noted that both companies have faced a "perfect storm" of headwinds, including sluggish mobile capital expenditure, European telecom mergers and acquisitions, contract renewal uncertainties, and higher interest rates. Despite these pressures, Barclays argued that current valuations embed excessive pessimism, particularly regarding contract renewal risks.
The market appears to be pricing in cuts of more than 25% to Cellnex’s contract renewals and over 20% to INWIT’s core master services agreements, which Barclays described as "far too high." The firm estimated that Cellnex’s valuation multiples for 2027 stand at 13.7x EV/EBITDAaL, compared with 11.6x for INWIT, both below historical averages.
Barclays also highlighted potential risks, including a "worst-case" scenario where contract renewals in France and Italy could reduce Cellnex’s EBITDAaL by approximately €100 million each, totaling €200 million. This would translate to a net present value impact of about €1.5 billion, representing roughly 6% of projected EBITDAaL, 7% of recurring free cash flow, and 9% of free cash flow before new tower investments.
Looking ahead, Barclays suggested that Cellnex could accelerate shareholder returns, potentially distributing €2 billion annually via dividends and buybacks between 2027 and 2030, equivalent to more than 40% of its current market capitalization. Both companies also offer recurring levered free cash flow yields of around 11%, with INWIT’s yield near 10%, reflecting strong cash generation despite market skepticism.
