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Telecity continues growth
Telecity Group’s statement today seems to confirm that it is continuing the high growth seen in the first half (revenues up 33%, EPS doubling).
Occupied space increased only 3% over the four months since the H1 results (annualised 9%) is a lower than the 16% increase in the first half. However, the continued capacity expansion, including a 17% increase in available power (to 41MW) implies a high level of management confidence.
The use of electrical power capacity as a measure reflects the nature of the business: adequate (and stable) power supplies for racks of computers and heat dissipation are now the hardest constraints to overcome.
Telecity (formerly Telecity Redbus) is very strongly positioned in its market, and it is likely that its market will grow. Although growth in much of the corporate server market has slowed during the recession, demand for network connected data centres is very likely to grow strongly over the long term, particularly as web services and applications continue to become more widely used.
At 335p the shares are on a trailing twelve month PE of 30×, but it is growing rapidly and sustainably, and the PE drops rapidly as one looks forward. Even if the second half is no more profitable than the first (which is a very pessimistic view), it is on a prospective PE of no more than 24×.
Given that we are close to the year end, even a short term view should take in next year, where we are looking at more like 15×. These shares look attractive to growth investors, however it may be a little early in the cycle to switch to high rated growth.
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