Divi payments not slowing TeleCity's growth aspirations

The insatiable desire for data in the always-connected 21st century is driving strong growth for the services of data centres operator Telecity.

The group is developing a reputation for living up to expectations and sometimes exceeding them. In its interim management statement back in early May the company was a little coy about just how well it had been doing, saying only that it had delivered a good performance in the first quarter in terms of growth in revenue, earnings before interest, tax, depreciation and amortisation (EBITDA) and earnings per share (EPS), but the interim results produced numbers to back up those claims:

- revenue up 22.4% year-on-year

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- underlying EBITDA up 26.6%

- underlying diluted EPS up 36.2%

All of the above despite fairly significant currency headwinds; around half of the group's business is based in the Eurozone and the euro has been about as worthless as a paper pound of late.

Keeping the home fires burningIn the UK, the group lifted revenue by 20.3% to £67.8m in the first half of 2011 from £56.4m the year before, and EBITDA rose more or less in-step, up 21.0% to £30.0m from £24.8m.

During the reporting period fitted-out space in the UK increased 8.4% to 32,100 square metres (sq. m) and occupancy was 88.0%, down from 90.1% in the first half of last year. Revenue per occupied sq.m increased 12.7% to £4,805 from £4,264 in the corresponding period of 2011.

Total customer available power at the end of June was 30 mega-watts (MW), increasing to 32MW currently, in the UK. The total announced capacity pipeline for the UK division is now a further 25MW, most of which will be delivered over the next three years, suggesting the company is confident that demand is going to continue at a fair lick.

Mainline on the mainlandAs for the Rest of Europe (RoE), where Telecity is particularly strong in Amsterdam, Dublin, Frankfurt, Milan, Paris and Stockholm, growth was even more impressive, despite the unhelpful foreign exchange movements.

RoE revenue jumped 24.5% to £69.5m from £55.9m, but the rise would have been 31.2% were it not for those pesky exchange rates. RoE EBITDA climbed 32.1% (39.8% on a constant exchange rates basis) to £32.6m from £24.7m.

During the first half of the year fitted-out space increased 21.2% to 44,000 sq.m (first half, or H1, of 2011: 36,300 sq.m) and occupancy to 76.5% (H1 2011: 72.4%). Revenue per occupied sq.m decreased 2.0% to £4,233 (H1 2011: £4,321). On a currency neutral basis, revenue per occupied sq.m increased 3.2%. These metrics include the impact of the capacity acquired with Data Electronics in the second half of 2011, Telecity said.

Total period end customer available power was 46MW, increasing to 48MW currently. The total announced capacity pipeline for the RoE division is now a further 25MW, most of which will be delivered over the next three years.

"Once more the group has delivered excellent results and we have enhanced our growth platform with new capacity openings across Europe and continued to secure further capacity in response to customer demand to underpin longer-term growth," said Michael Tobin, the Chief Executive Officer of Telecity.

Investment related capital expenditure was £73.3m, a sharp increase on the £39.6m splashed out in the first half of 2011.

Net debt as a multiple of annualised EBITDA shot up to 1.6 from 0.6 the year before as a result of acquisitions made in the second half of last year. That trend might be of concern to some but the demand is clearly there, and given that over 90% of revenue is of a recurring nature, the occasional spike in gearing can probably be accepted with equanimity by Telecity shareholders.

In any case, the increase in debt has not stopped the company from making good on its promise to pay a maiden dividend, with the company paying 2.5p first time out, in line with previously indicated guidelines of dividend pay-outs roughly one-fifth of retained earnings.

"It is testament to the strength of Telecity Group's business model that we are able to expand the group's growth horizon while at the same time commencing a progressive dividend policy," Tobin said, referring to the group's £3.7m acquisition of Tenue, a carrier-neutral data centre operator in Helsinki.

"Demand for premium data centres remains strong in all of our markets and I am confident that 2012 will continue to be another strong year for Telecity Group," Tobin said.

The shares were up 41p to 879.5p just before the close on the day of the interim results.