August 8, 2011 11:00 am

Telecity acquires Irish rival for £87.6m

Telecity was well placed to withstand any downturn in the European economy, it said on Monday, as the data centre company reported strong first-half results and the £87.6m acquisition of an Irish competitor.

Growth in cloud computing and mobile data usage helped pre-tax profit rise 137 per cent to £33.9m, and the takeover of Data Electronics, Ireland’s biggest data centre provider, consolidates Telecity’s status as Europe’s leader in the field.

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The acquisition would be cash-accretive from the outset, and the group expected to maintain its pace of growth for the foreseeable future, said Mike Tobin, chief executive.

“There’s no reason to think that we’ll be doing less online tomorrow than we were yesterday, regardless of the macroeconomic dynamics,” Mr Tobin said. “What we’re driving is mobile content, video on demand, Youtube, Facebook . . . all these things are growing regardless.”

Telecity was also benefiting from an increasing tendency among big companies to outsource data hosting as a cheaper and easier alternative to managing it in-house, he added.

The company would continue to grow by building new data centres and expanding existing ones, he added. Having increased total customer power from 30MW to 63MW since 2008, it expects to boost this figure to 116MW “in the next three to four years”.

It was eyeing several potential acquisitions in western Europe, and eastern European cities such as Prague and Warsaw also looked attractive in the long term, Mr Tobin said. However, there were no plans to move outside Europe.

“Outside Europe we have less knowledge, we have less relationships than we have in Europe,” he said. “I’m sure there’s plenty of growth in a market like Bangalore, but there’s also plenty of risk.”

Simon Strong, at Evolution Securities, said Telecity was “one of the most recession-proof companies in the sector”. The takeover of Data Electronics was a “sensible way to gain capacity”, and other small, “bolt-on” acquisitions were likely to follow, he added.

However, Joe Brent of Liberum Capital called the acquisition “expensive”, and highlighted slackening growth in the prices charged to customers.

Telecity’s revenue rose 19.8 per cent in the first half to £112.2m, with diluted earnings per share climbing from 6.2p to 12.6p.

The shares rose at first, but on a falling market closed down 7.5 per cent at 450.5p.

FT Comment

Telecity’s share price has more than doubled since it returned to the market in 2007, one of the best post-flotation performances in the UK technology sector in recent years. It now trades at a forward price/earnings ratio of about 20 times: a slight premium to its closest peers.

Yet even at this strong multiple, the shares look good value. Telecity has snapped up some of the best-located (in connectivity terms) real estate in London and several other cities in Europe, making it an obvious choice for companies that want secure, reliable and efficient data hosting.

Data volumes are set to surge, and big corporates around the world are increasingly turning to outside data centre operators to help them cope. Whatever happens to the European economy, this should remain the case – and Telecity shareholders are well placed to benefit.

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