BUSINESS MATTERS
Comms sector in review T
he hosting and fixed line sector returned to share price outperformance over the last month, with Adept
Philip Carse
Philip Carse, Telecoms Analyst at IS Research, reports on the recent performance of leading companies in the comms space.
Comms Index (12th May closing prices) Adept Telecom
Alternative Networks BT Group
C&W Worldwide COLT Telecom Daisy Group
(+21%), Virgin (+17%), Daisy (+9%), BT (+5%) and Telecity (+5%) all performing well after generally solid results or trading updates. The sector has therefore maintained its share price outperformance over the last year, with only one out of the 14 listed companies that we follow (Cable&Wireless Worldwide) suffering a share price decline over that period, due in large part to two profit warnings. These seem to have reflected company specific issues rather than general market conditions, given the generally resilient financial performances of other companies.
In terms of company results or trading updates in the last month, Adept Telecom and BT secured stronger EBITDA and cashflow from declining revenues (in BT’s case 8.5% EBITDA growth on 3.1% revenue declines in FY10/11), while Virgin demonstrated the resilience of consumer demand for comms and TV services with 5.7% revenue growth in its most recent quarter.
Equinix, Rackspace and Telecity highlighted strong double digit demand growth for data centre and hosting services. Daisy’s update highlighted progress in securing
Hosting and Fixed Line peer group share price performance Share price
MKt cap £m 41.0
242.5 199.0 52.1
148.6 101.0
Iomart 86.3 Kcom 62.0 Maintel Holdings Pinnacle Telecom TalkTalk Telecom
133.5
Telecity 520.0 Telecom Plus Virgin Media Average
482.5 1951.0 FTSE All Share 3097.6
222.5 0.5
8.7 115.9
15534.1 1383.3 1329.8 269.1 89.6
321.6 23.3 7.7
1218.0 1036.2 332.3
6221.9
synergies from acquisitions, and an analyst briefing in its Manchester data centre shed more light on its evolving data strategy. By comparison, results from COLT and Global Crossing UK highlighted the challenges facing network operators with substantial legacy revenues, with both companies reporting circa 5% revenue declines in the recent quarter, and COLT reporting its lowest EBITDA for 10 quarters.
M&A sector hots up
M&A in the sector shows no sign of abating, after Daisy’s three deals in late February to early April (O-bit, Outsourcery’s Vodafone business and Niu Solutions assets). TalkTalk Business (formerly Opal) acquired B2B reseller Executel, a relatively small deal for the company, while serial acquirer Iomart made yet another acquisition, buying hosting provider Switch Media for £1.15 million and boosting EBITDA post synergy by circa 5%.
Meanwhile, COLT, which rarely if ever undertakes M&A, acquired a majority stake in low latency services provider MarketPrizm in return for funding ongoing operating losses (expected to hit EBITDA by 10m euro this year). On the global stage, two TMT boom just-about survivors, Level3 and Global Crossing, announced a merger to secure cost synergies in the face of continued revenue declines. Despite the pace of M&A, equity
Share price 1 month 20.6% -3.8% 5.1% 2.4% 0.7% 8.6% -3.9% -2.4% 10.4% 18.4% -0.8% 5.1% 1.5%
17.1% 5.6% 0.2%
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Share price 3 months 41.4% 24.4% 7.4%
-32.2% -2.9% -1.5% -5.7% 6.9% 5.9% 4.7%
-10.8% 3.0% 3.7%
15.6% 4.3% -1.5%
Share price 1 year 86.4% 72.1% 72.7% -30.8% 21.5% 12.2% 93.8% 32.3% 47.1% 28.6% 6.6%
34.0% 63.1% 70.0% 43.5% 11.4%
fund raising by quoted companies has been scarce in recent months. However, private company Chess secured a £21m M&A debt facility. n
Round up
BT restores EBITDA to above crisis levels and nudges up outlook BT has reported on its strong FY10/11, with underlying revenues excluding low margin transit down 3%, EBITDA up 4%, better than expected cashflow, an increased dividend and an improved pensions position. BT expects to eke out further small growth in EBITDA on stabilising revenues.
Rackspace reports accelerating hosting and cloud growth trends US-quoted hosting specialist Rackspace reported very strong Q1 results, with revenue growth accelerating to 28.6%, strong margins and cashflow, and all metrics strengthening, aided by new cloud services. UK growth was a tad lower at 23.8%, with the new cloud services rolled out later than the US.
Bouyant Telecity further enhances operational and funding capacity Telecity has released a robust IMS for Q1, announcing in-line ‘strong’ trading, increases in capacity and a 50% increase in debt facilities to £300m. The company now has enough capacity for five to six years of growth, but is also evaluating a couple of bolt on acquisitions.
Adept Telecom confirms continued strong debt reduction
Adept has announced that EBITDA for the year to March 2011 is likely to be slightly ahead of last year’s £3.5m, while net debt has been reduced faster than expected.
IS Research publishes www.
megabuyte.com, a company analysis and intelligence service covering over 200 public and private UK technology companies.
philip.carse@
is-research.co.uk
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