Private Utility Broadband Networks Will Drive Long-Term Value For This Undervalued Spectrum Owner

Catalysts

About Anterix

Anterix develops and monetizes 900 megahertz spectrum and related solutions to enable secure private broadband networks for critical infrastructure, primarily electric utilities.

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

• Increasing utility investment in grid modernization and digital infrastructure, including the build out of real time, secure connectivity for millions of devices, should support steady growth in spectrum leasing revenue and long duration cash flows.
• Regulatory progress toward 10 megahertz expansion at the FCC would enhance the strategic value of Anterix licenses, enabling richer network capabilities and supporting higher contract values and improved pricing power.
• Scaling of TowerX with Crown Castle and similar infrastructure partnerships can accelerate customer deployment timelines, pulling forward contracted milestones and associated cash receipts while maintaining a light operating expense model.
• Broad adoption of private utility broadband networks through CatalyX device and SIM management is likely to deepen customer relationships and expand recurring service revenue, supporting higher margins over time.
• Continued clearing of incumbents and conversion of narrowband to broadband licenses, coupled with the large portion of spectrum still unmonetized relative to its book value, provides a path to substantial noncash gains, higher realized revenue and expanding free cash flow.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Anterix's revenue will grow by 5.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 1614.1% today to 13.5% in 3 years time.
• Analysts expect earnings to reach $935.0 thousand (and earnings per share of $0.05) by about December 2028, down from $95.6 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 1383.9x on those 2028 earnings, up from 4.2x today. This future PE is greater than the current PE for the US Telecom industry at 9.1x.
• 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?

• Dependence on favorable FCC action for 10 megahertz expansion and ongoing clearing of complex incumbent systems introduces regulatory and execution risk that could delay or reduce spectrum availability, limiting the pace of new contracts and slowing revenue growth.
• The long dated nature of utility decision cycles and the need to convert pilots and Accelerator participants into full scale deployments may lead to slower than expected adoption of TowerX and CatalyX, which would constrain recurring service uptake and pressure top line revenue.
• A heavy reliance on noncash gains from exchanging narrowband to broadband licenses to support reported profitability could mask underlying operating performance, so if future conversion activity moderates, reported earnings and net margins may decline from current elevated levels.
• While management emphasizes a balance sheet and free cash flow story, the company still has a large portion of spectrum to clear and monetize, and any increase in clearing costs or weaker than expected pricing versus recent auctions could erode spectrum asset value and compress future free cash flow and earnings.
• The strategy assumes utilities will prioritize private 900 megahertz networks as they deploy over one trillion dollars of grid investment, but if alternative connectivity solutions such as public cellular, fiber, or competing private spectrum win a larger share of that spend, Anterix could capture a smaller portion of the opportunity, limiting long term revenue growth and scale benefits to net margins.

Valuation

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

• The analysts have a consensus price target of $55.33 for Anterix based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• 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 analysts, you'd need to believe that by 2028, revenues will be $6.9 million, earnings will come to $935.0 thousand, and it would be trading on a PE ratio of 1383.9x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $21.63, the analyst price target of $55.33 is 60.9% 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.