Telecity, the European data centre operator, has dropped more than 7% despite an in-line update, as the company unveiled what analysts said was an expensive - albeit small - acquisition.
The company said trading remained strong across Europe, and its full year earnings were expected to be in line with City forecasts. But it also announced the €28m cash purchase of Academica in Finland. Analyst James Goodman at Investec said:
At €28m for 1MW of operational capacity, today's (admittedly small) deal seems very expensive. However, the business has an expansion plan to quadruple the capacity to 4MW which would clearly lessen the price, but would depend on the incremental capital expenditure required. We note that own-build (where possible) is considerably cheaper; the Powergate expansion works out to only £6m or so per MW on our estimates.
We understand the acquisition's current revenue and EBITDA are approximately £15m and £2.5m respectively.
He said that with the deal and increased expenditure, the company's full year net debt could climb to £248m. Liberum Capital issued a sell note, saying:
Trading [was] in-line with expectations for 2012 but we cut our 2013 estimated earnings per share by 6% principally to reflect higher depreciation (and in spite of the acquisition of Academica for €28m). With no earnings momentum we believe the valuation looks full on an absolute basis (25 PE for 2013), relative to peers and relative to history.
The company's shares have fallen 66.5p to 846.5p, although chief executive Michael Tobin has today bought 2000 shares at 843.6p each.
