When Vodafone (VOD) subsidiary Vantage Towers joins the Frankfurt stock market on 18 March it will be one of the biggest IPOs of 2021 so far. Market value estimates run from €12.2 billion to €12.7 billion, based on the expected €24 to €25 stock range.

At first glance, this doesn’t look like a very compelling growth opportunity. For all the talk of superfast 5G mobile networks and emerging internet of things connectivity, Vantage Towers remains a capital intensive, heavily leveraged company (about €2 billion net debt) with modest growth potential. Mid to high single-digit earnings progress is about as good as it could get.

Vantage Towers operates thousands of mobile masts across Europe, providing coverage for Vodafone’s network customers, and selling spare capacity to third parties. 

Mobile towers have become the target of several big deals as Spain’s Cellnex and US-based American Tower race to increase their European footprint. Cellnex is Europe’s number one with more than 100,000 tower sites versus about 82,000 towers for Vantage. American Tower has an estimated 200,000 towers globally but only around a quarter of them are in Europe.

Europe lags the US when it comes to specialist mast network operators, with Vantage estimating that only 42% are in the hands of dedicated commercial operators versus 90% in the US. Wider, faster communications networks will improve economic productivity, the thinking goes, creating a supportive backcloth for mast network operators.

That’s also why Vodafone wants to retain a controlling stake in the business, with about 25% of Vantage expected to be sold to new investors at its IPO. Vantage is a longstanding top-tier mast network operator in major markets across Europe, with the bulk of its sites based in Germany, Spain and Greece. It is also in Italy through its minority stake in Inwit.

As with any utility-type business, all investors really care about is getting a decent and reliable income, and not losing too much capital while they’re at it.

This is exactly where Vantage Towers could win investor support, particularly after a year or more when many previously solid income plays have been forced to cut or axe shareholder payouts.

Vantage Towers should have large and reliable cash flows based on long, annuity-type contracts securing revenues into the future, allowing the company to use its balance sheet to fund the business and dividends. The company is promising to pay out 60% of earnings as dividends.

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