A Cellnex control room
Cellnex has launched a €7bn shareholder rights issue to help cover two recently announced acquisitions worth €9bn © Bloomberg

Nominative determinism applies to Spain’s Cellnex. Europe’s largest wireless tower owner sells plenty of equity to fund acquisitions. On Tuesday it confirmed a €7bn shareholder rights issue to help cover two recently announced acquisitions in France and Poland worth €9bn. This offering follows €7.7bn of equity raisings in the previous two years.

Cellnex’s roll-up model requires it to keep buying telecoms towers, ensuring the growth that in turn has lifted its share price. The Madrid-based group sensibly sells more shares when it finds another target. But an outstanding run for its share price has started to slow in recent months, for good reasons.

As Cellnex’s ambitions expand, so do the size of equity calls on shareholders: from €1bn, to €2.5bn then €4bn last July. Who can blame chief executive Tobias Martinez? Cellnex’s valuation multiple has expanded over time and his investors have happily forked out.

Cellnex’s enterprise value is now a hefty 20 times forward ebitda, up a third from five years ago. That is more than European peers Inwit of Italy, or Vodafone’s Vantage Towers. Market leader American Tower trades about a fifth higher, recently buying in Cellnex’s backyard from Telefónica.

Cellnex keeps on buying. It has already inked three separate tower purchases this year alone. Including these, Martinez foresees spending a total of €18bn by the end of 2022. The group needs to reduce its net debt, pushing four times this year’s ebitda prior to this rights issue. Rising bond yields are one reason its share price has fizzled recently.

Cellnex relies on low-growth mobile operators. Martinez promises investors long-term, inflation-protected cash flows.

The problem is that Cellnex’s invested capital has quadrupled since 2017. Tacking on another €7bn will not help. The return on invested capital falters every year. Last quarter it was barely above zero, using Bloomberg data. That was below a weighted cost of capital of 5 per cent. American Tower’s higher share rating is justified by its return on invested capital of 7 per cent.

Cellnex’s next step should be to stop selling shares and concentrate on improving returns.

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