Helios Towers, the African and Middle Eastern independent tower giant, has painted a picture of organic growth and deleveraging for the next three years. Their new strategic mantra, "2.2x by 2026," focuses on reaching a tenancy ratio of 2.2 tenants per tower. This seemingly straightforward goal, however, might be masking a more ambitious play hidden in plain sight within their recent <a href="https://seekingalpha.com/symbol/HTWSF" alt="Helios Towers plc">Helios Towers plc (OTCPK:HTWSF)</a> Q1 2024 Earnings Call Transcript.

While the shift from acquisitions to organic growth makes sense in the current high-rate environment, a closer look reveals an intriguing detail: the strategic importance of in-building solutions (IBS) for Helios' future.

Helios CEO, Tom Greenwood, casually mentions the inclusion of IBS within their existing CapEx guidance for both 2023 and 2024. This seemingly minor detail, barely touched upon in analyst questions, could be a game-changer. It signals a potential shift in how Helios views its role in the evolving 5G landscape.

Consider this: the explosive growth of data consumption, tripling in just five years across their nine markets, will necessitate not just more towers, but a denser network infrastructure. The 32,000 new points of service required over the next five years cannot be solely met by traditional towers. Enter in-building solutions, small cells, and other infill technologies – precisely the areas Helios is quietly dipping its toes into.

The Oman acquisition provides a compelling case study. With its advanced 5G rollout, Oman showcases the increasing relevance of IBS for optimal 5G user experience, particularly with the use of higher frequencies like the 3,500 band. Helios' potential second closing in Oman, involving over 200 in-building sites, further strengthens this hypothesis.

Here's where the "2.2x" strategy gets interesting. While achieving 2.2 tenants per tower is undoubtedly a financial driver, it also strategically positions Helios to become a comprehensive network infrastructure provider.

Imagine this: Helios, with its dominant market share in seven out of nine markets, not only owns the towers but also manages the intricate web of in-building solutions, seamlessly connecting users across various environments. This positions them as an indispensable partner for MNOs, offering a one-stop shop for all their network infrastructure needs.

Tenancy Growth and Financial Performance

Let's delve into the numbers. Helios reported record organic tenancy additions in 2023, exceeding 2,400, with a strong start to 2024 already boasting over 500 additions. Assuming a conservative estimate of 10% of these additions being IBS-related, that translates to roughly 240 and 50 tenancies for 2023 and Q1 2024, respectively. While seemingly small compared to overall tenancy numbers, these represent a substantial starting point for a potentially lucrative segment.

Reference: <a href="https://seekingalpha.com/symbol/HTWSF" alt="Helios Towers plc">Helios Towers plc (OTCPK:HTWSF)</a> Q1 2024 Earnings Call Transcript

Furthermore, consider the implications for Helios' financial performance. IBS, with its potentially faster lease-up rates and recurring revenue streams, could significantly boost Helios' adjusted EBITDA and portfolio free cash flow. While precise figures remain elusive due to the integration of IBS within existing CapEx, the potential for an upward revision of financial guidance down the line shouldn't be dismissed.

EBITDA and Leverage

Reference: <a href="https://seekingalpha.com/symbol/HTWSF" alt="Helios Towers plc">Helios Towers plc (OTCPK:HTWSF)</a> Q1 2024 Earnings Call Transcript

Reference: <a href="https://seekingalpha.com/symbol/HTWSF" alt="Helios Towers plc">Helios Towers plc (OTCPK:HTWSF)</a> Q4 2023 Earnings Call Transcript

Helios Towers' "2.2x by 2026" strategy appears less about a simple tenancy ratio and more about a calculated evolution into a full-fledged network infrastructure provider. By stealthily integrating IBS into their portfolio, they're not just adding tenants to towers; they're weaving a network of connectivity that could redefine their future growth trajectory. Analysts focused on the headline figures might be missing the subtle hints of a more profound transformation underway. Helios Towers, the sleeping giant, might be waking up to a much larger opportunity than anyone realizes.

"Fun Fact: Helios Towers has a strong commitment to sustainability, retaining an AAA MSCI rating. They've also pioneered a Lean Six Sigma training program, with over half their workforce trained in driving performance and efficiency, contributing to their impressive power uptime of 99.98%. This dedication to operational excellence, coupled with their strategic vision, makes them a force to be reckoned with in the African and Middle Eastern telecom landscape."