The market has made up its mind on Telecity (TCY). As today's near-10% share price sell-off to 659p shows, investor mood on full-year results is dominated by pricing concerns, rising customer churn, intense competition and ongoing downward pressure from currency volatility. City analysts now appear split between those willing to view the near-term future of Europe's biggest co-location data centre operator from a glass half full, or empty, standpoint.
In short, Telecity's 2013 results show revenues 15% higher at £326 million and 18% increases on both the earnings before interest, tax, depreciation and amortisation (EBITDA) and earnings per share (EPS) lines. However, critics point out that both revenue and EBITDA missed consensus targets, albeit by the odd percentage point or two, while a good chunk of that growth came from several acquisitions completed during the year, including Sadace in Turkey, 3DC (Bulgaria) and PLIX (Poland). According to Telecity, underlying revenue growth after stripping out these purchases amounted to 9.5%, although that falls to 6.8% once positive currency effects are netted off.
'In spite of a strong demand environment due to continued data traffic growth, the industry dynamics are deteriorating due to excess supply,' point out number crunchers at investment bank Espirito Santo. 'Valuation needs to reflect the risks,' say Liberum's own in-house experts, who go on to highlight Telecity's operationally-geared business model with risks asymmetrically weighted to the downside given current levels of utilisation, pricing and the perceived threat of increasing customer churn.
In the optimists' camp stand analysts from Investec and Numis. According to Investec, today's results show 'some weak points' but it does note this is a 'fundamentally healthy business with double digit total shareholder returns still expected through both growth and cash returns.' That latter point is well made; Telecity's increasingly muscular cash generation was a key part of Shares' Play of the Week write-up last month. For the record, last year's dividend payout was hiked 40%, from 5p per share in 2012 to 7p. A 10.5p per share payout is the general consensus for 2014, implying a 50% jump this year, although we still await a permanent chief financial officer appointment to provide the rubber stamp.
'We remain of the view that there is a strong asset maturation story in Telecity,' argues Numis,'and that investors maximise their returns by buying quality companies at times of high uncertainty.'