Unmonetized Spectrum And Slow Utility Adoption Will Eventually Support Long Term Potential

Catalysts

About Anterix

Anterix focuses on monetizing 900-megahertz wireless spectrum and related solutions for utilities and other critical infrastructure operators.

What are the underlying business or industry changes driving this perspective?

• Although utilities are showing interest in private broadband networks as they modernize grids, Anterix still has roughly 85% of its spectrum yet to be monetized. Any delay in converting that interest into contracts could slow the realization of expected spectrum value and defer cash inflows and earnings.
• While the push toward more connected devices and real time grid visibility supports the need for private wireless networks, execution risk around TowerX deployments, including site access, build timing and customer adoption, could limit how quickly this translates into recurring service revenue and margin expansion.
• Although CatalyX is designed to let utilities start connecting and managing devices even before securing spectrum, customer willingness to adopt a new platform and shift operations to it is uncertain. This may constrain the growth in high margin solution revenue that management is targeting.
• While Anterix reports that spectrum clearing is roughly 85% complete and can move to FCC licensing on about 90% of US counties, remaining complex systems and any regulatory timing issues could slow license conversions and the recognition of associated gains and contracted proceeds on the income statement and cash flow.
• Although the company highlights an asset value that it believes is roughly 10x the current balance sheet carrying value of US$325 million, the actual monetization of the remaining spectrum at auction comparable pricing depends on continued utility capital spending and contract wins. This may impact future revenue visibility and long term free cash flow.

Assumptions

This narrative explores a more pessimistic perspective on Anterix compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Anterix's revenue will grow by 2.6% annually over the next 3 years.
• The bearish analysts are not forecasting that Anterix will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Anterix's profit margin will increase from 1614.1% to the average US Telecom industry of 13.7% in 3 years.
• If Anterix's profit margin were to converge on the industry average, you could expect earnings to reach $877.8 thousand (and earnings per share of $0.05) by about January 2029, down from $95.6 million today.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 1172.1x on those 2029 earnings, up from 4.4x today. This future PE is greater than the current PE for the US Telecom industry at 12.0x.
• The bearish analysts expect the number of shares outstanding to grow by 0.7% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.96%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• If utilities slow or reprioritize their long term grid modernisation and connectivity spending, the expected demand for 900 megahertz private broadband networks could take longer to materialise. This would affect Anterix's ability to convert its spectrum pipeline into realized revenue and delay future free cash flow.
• Anterix still has roughly 85% of its spectrum to monetize. The value management associates with this asset, in the range of roughly US$1.5b to well over US$4b, depends on utilities and other critical infrastructure players continuing to sign contracts on terms consistent with prior auction benchmarks. Weaker contract activity or tougher pricing could weigh on revenue and long term earnings power.
• The long term shift toward higher margin solutions such as TowerX and CatalyX assumes that utilities adopt these programs at scale. Slower customer uptake or operational complexity around tower access, device management and security could limit growth in solution revenue and constrain margin expansion.
• Progress on spectrum clearing is reported at around 85% of incumbents cleared, with the ability to go to FCC licensing on about 90% of US counties. However, remaining complex systems and regulatory timing could slow future license conversions, which would affect the timing of both recognized gains and contracted proceeds on the income statement and cash flow.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Anterix is $44.0, which represents up to two standard deviations below the consensus price target of $55.33. This valuation is based on what can be assumed as the expectations of Anterix's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $72.0, and the most bearish reporting a price target of just $44.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be $6.4 million, earnings will come to $877.8 thousand, and it would be trading on a PE ratio of 1172.1x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $22.23, the analyst price target of $44.0 is 49.5% higher. Despite analysts expecting the underlying business to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.