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Digital growth spurs Telecity rise

RESULTS: Growth is rapid but Telecity's rating is right up with events
August 2, 2010

The rapid rise of the digital economy continues to fuel strong growth for data centre operator Telecity.

IC TIP: Hold at 439p

Strip out the £7.1m cost of refinancing its £200m senior debt facilities, which dampened reported profits, and underlying EPS jumped 30 per cent to 9p. Predominantly fixed costs also meant that a 14.7 per cent rise in revenue fed through to a 29 per cent hike in cash profits, of £37.9m, as cash profit margins broke through the 40 per cent mark for the first time, up 4.7 percentage points.

Further capacity has been added in Stockholm, Sweden and in Manchester, via the £21.1m acquisition of IFL in Manchester announced alongside the results, taking total capacity from the company's 24 European centres to 92MW (mega watts), up from 60MW this time last year. Having invested £28.9m in capex in the first half, Telecity expects to invest a further £50m-£60m more this year just to keep pace with strong demand as customers in video, mobile data and online retail, in particular, power strong underlying demand for outsourced data storage right across Europe.

Telecity's rapid growth now means historic tax losses have been all but exhausted and the company will incur a full tax charge from next year. Altium Securities forecasts 2010 EPS of 20.5p, rising to 22.2p in 2011 (2009: 16.2p).

TELECITY (TCY)

ORD PRICE:439pMARKET VALUE:£ 870m
TOUCH:439.1-440.4p12-MONTH HIGH:459p300p
DIVIDEND YIELD:NILPE RATIO:26
NET ASSET VALUE:114p*NET DEBT:20%

Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Net div per share (p)
200982.214.77.0nil
201093.714.36.4nil
% change+14-3-9-

*Includes intangible assets of £44.3m, or 22p per share

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