BUSINESS MATTERS
Comms sector in review T
he last month has been a busy one for the Megabuyte Hosting and Fixed peer group, with results/updates
Philip Carse
Philip Carse, Telecoms Analyst at IS Research, reports on the recent performance of leading companies in the comms space.
Comms Index (17th April closing prices) Adept Telecom
Alternative Networks BT Group
C&W Worldwide COLT Telecom Daisy Group Iomart Kcom
Maintel Holdings Pinnacle Telecom TalkTalk Telecom Telecity
Telecom Plus Virgin Media Average
FTSE All Share
from Daisy, Alternative Networks, Iomart and Telecom Plus, acquisitions by Daisy, Six Degrees and Adapt Group, and Vodafone’s offer for Cable&Wireless Worldwide. Turning first to M&A activity in the last month by three declared buy and builds – Daisy, Six Degrees and Adapt: Daisy, in its first significant deal for a year since buying Outsourcery’s mobile business and various Niu Solutions assets, acquired Worldwide Group for £28m, or a relatively high (for Daisy) 7x EBITDA. Worldwide Group specialises in wholesale audio conferencing and call handling for providers such as Meeting Zone and Intercall (accounting for two-thirds of revenues), as well as offering a full array of business comms services (lines, calls, mobile, broadband etc) to 800 customers.
Managed data services provider Six Degrees followed up February’s Ultraspeed deal with the acquisition of Telstra UK’s mid-market customer base for an undisclosed amount, adding an estimated high single millions in revenues and taking Six Degrees’ annual revenues towards £40m. This base currently takes a mixture of voice, data and hosting services, across financial, hospitality and leisure sectors.
Hosting and Fixed Line peer group share price performance Share price
MKt cap £m 49.5
261.0 219.7 36.1 98.0
112.5 137.5 72.0
397.5 0.3
133.2 764.5 680.0
1530.0 2997.7 10.44 126.06
17108.04 991.70 874.36 300.38 144.10 371.95 42.53 6.63
1217.58 1534.35 477.36
4259.52
Managed services provider Adapt did its first deal since last September’s Lyceum-backed MBO, buying eLINIA for £13m, or 1x sales. eLINIA is a Cardiff-based company with data centre facilities in Cardiff, Newport and Slough, specialising in data centre infrastructure and managed hosting services, including public and private Cloud solutions.
Meanwhile, Vodafone submitted a recommended bid for Cable&Wireless Worldwide of 38p per share, valuing the company at £1.04bn, which will double Vodafone’s UK business revenues and catapult it from fifth to second in UK telecoms, behind BT. Though the offer is only 3.1x EBITDA, integration and other costs mean that it will take four years before the deal becomes more accretive to Vodafone in earnings and free cash flow terms compared with a share buyback. We believe the deal lacks a compelling strategic merit, entails significant risk for Vodafone, and is certainly not cheap given the integration costs involved.
The last month has seen reasonably cautious trading updates from business telecoms resellers Daisy and Alternative Networks and more positive ones from data centre/ hosting provider Iomart and multi- utility reseller Telecom Plus, who are enjoying ongoing estimate upgrades. Both Daisy and Alternative
Share price 1 month 4.2%
-10.6% 1.7% -4.9% -3.2% 2.9% -2.2% 5.9% 1.4% -2.8% -8.9% 7.4% 3.2% -0.7% -0.5% -2.0%
Share price 3 months 30.3% -11.5% 5.2%
66.1% 8.2%
15.5% 2.2% 5.9%
15.9% -2.8% 7.6%
16.6% 3.8% 1.9%
11.8% 1.2%
Share price 1 year 44.5% 4.6%
16.4% -27.1% -33.3% 14.4% 58.8% 19.5% 91.3% -10.3% -4.1% 48.3% 44.7% -13.4% 18.2% -2.1%
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highlighted lengthening of sales cycles for larger data and systems projects, and broader economic impacts, while pending mobile termination rate reductions will also hit the top line. However, both continue to be nicely profitable and cash generative. Meanwhile, Telecom Plus is benefitting from customers taking more products, and Iomart from generally positive colo and hosting market conditions as well as economies from acquisitions.
The sector has lacked share price direction in the last month, with an average 0.5% fall, but is still outperforming the FTSE over three and 12 months. Alternative Networks (-10.6%) and Daisy (+2.9%) responded differently to their respective cautious trading updates, as did Iomart (-2.2%) and Telecom Plus (+3%) to their positive updates.n Megabuyte’s monthly Hosting and Fixed Line reports are sponsored by Knight Corporate Finance.
Round up
Adapt makes first post-MBO deal with eLINIA acquisition Adapt Group has made its first acquisition since last September’s Lyceum-backed MBO, buying managed data centre service provider eLINIA for £13m, taking pro forma revenues to over £50m.
Virgin Media Business transitions from unloved child to growth driver Virgin Media Business (VMB) has gone from being an unloved and unwanted part of the Virgin Media Group, and was even rumoured to have been for sale in 2007, to being the fastest growing part of the business in 2011 and 2012.
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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