BUSINESS MATTERS
Comms sector in review T
he overall -0.5% share price performance of the Hosting and Fixed Line peer group in the last month masked
Philip Carse
Philip Carse, Telecoms Analyst at IS Research, reports on the recent performance of leading companies in the comms space.
Comms Index (16th November closing prices) Adept Telecom
Alternative Networks BT Group
C&W Worldwide COLT Telecom Daisy Group
Maintel Holdings Pinnacle Telecom TalkTalk Telecom
some very divergent, results-driven performances. CWW (-19.6%) reported interim results that were in line with expectations reduced after recent profit warnings (revenues down 4.5% to £1.072bn and EBITDA down 11.2% to £190m), but the shares were hit by the announcement of a new CEO and a fairly vague strategy. Virgin Media shares fell 7.3% after the company reported revenue and EBITDA growth of 2.2% and 2.8% respectively to £1bn and £398m, driven by TV services, but this growth was lower than the 6-7% of recent quarters.
By comparison, an update from Telecity (+6.1%) in which it announced more expansion and the introduction of a dividend policy, and results from Interxion and Equinix highlighted continued positive conditions in data centres, with Interxion achieving 13% growth and Equinix 21% organic growth, while hosting provider Rackspace excelled with revenue growth of 32.5%.
Back to telecom network services, COLT (+3.9%) enjoyed its first quarterly revenue growth for 10 quarters, albeit of just 0.6% to 395m euro in Q3, but also grew EBITDA by 21.3% to 84.3m euro. TalkTalk
Hosting and Fixed Line peer group share price performance Share price
MKt cap £m 34.3
258.5 189.2 21.9 98.2
106.5
Iomart 109.5 Kcom
73.5
242.5 0.3
134.0
Telecity 616.0 Telecom Plus Virgin Media Average
729.0 1,535.0 FTSE All Share 2,837.1 7.2 124.5
14,708.4 590.8 875.6 284.3 114.7 379.7 25.9 7.0
1,224.9 1,222.5 510.4
4,643.2
grew EBITDA 16.4% to £142m on revenues down 4.8% at £844m in its first half. BT (+4.5%) continued its usual trick of eking out EBITDA growth (3%) from falling revenues (down 1.7% to £4.894bn in its Q2).
The strong growth in data centres/hosting and the ability of most fixed line players to grow profitability despite revenue pressures has sustained a share price outperformance by the hosting and fixed line sector over the last 12 months, with an average share price rise of 18.8% against a 3.3% fall for the FTSE All Share.
M&A activity Following on from the £30m Lyceum- backed MBO of Adapt Group in late September, private equity interest in hosting assets continued with ISIS Equity Partners supporting a £27m MBO at data centre and business continuity provider Onyx, as well as making available £15m for acquisitions. We estimate that ISIS may have paid up to 10x current year EBITDA, setting a new benchmark.
The only other deal of note was TalkTalk Business’s acquisition of Greystone for an undisclosed amount, being its second relatively small acquisition of the year, after Executel in April. These acquisitions will help offset revenue pressures, as demonstrated by the 6.5% decline
Share price 1 month 7.0% -1.7% 4.5%
-19.6% 3.9% -3.6% 4.8% 4.3% 3.2% -8.1% 1.5% 6.1% -1.5% -7.3% -0.5% 1.1%
Share price 3 months 2.2%
-12.3% 6.9%
-42.1% -14.6% -2.0% 8.4% -1.7% 12.6% -12.8% 4.0%
18.0% 12.7% -1.2% -1.6% 2.0%
Share price 1 year 55.7% 47.1% 19.7% -65.6% -17.8% 12.4% 23.2% 55.0% 31.7% -15.0% -9.0% 35.9% 96.8% -6.3% 18.8% -3.3%
reported by TalkTalk Business in the first half to £158m.
Megabuyte’s monthly Hosting and Fixed Line reports are sponsored by Knight Corporate Finance.
Round up
Interxion reports slowing revenue growth in Q3 European data centre provider and Telecity peer Interxion has reported relatively sedate Q3 results, with 13% revenue growth to 62m euro contrasting with 21% growth in Q1 and 19% in Q2. Management gave a rather confusing outlook on the analysts call, highlighting lengthening sales cycles and maintaining seemingly beatable full year guidance while at the same time announcing yet more new data centre investment, this time in Amsterdam.
TalkTalk continues to drive profitability and cash flow TalkTalk’s interims show continued revenue pressures (down 4.8% at £844m), but continued improvements in profitability and cash flow, and the company now expects to hit the top end of EBITDA margin and EPS expectations. Despite this, the core broadband business is flat, and continues to under-perform its TV-rich peers, Virgin and Sky.
CWW stabilises and embarks on a more commercial approach CWW’s interims show that, after three profits warnings, the business appears to be stabilising in EBITDA terms with no nasty surprises, though with cash flow still poor. To address its issues, CWW is appointing a new CEO (Gavin Darby), removing the dividend, investing in hosting and introducing a more commercial and disciplined approach to pricing and investment. 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
Kcom’s Accelerate Channel Partner Programme now available 34 COMMS DEALER DECEMBER 2011 Register now:
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