UPDATE 1-Telecity's guidance miss sends shares to two-year low

Wed Feb 12, 2014 6:45am EST

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* Says demand robust, pricing 'fairly stable'

* Shares fall to two-year low

By Paul Sandle

LONDON, Feb 12 (Reuters) - Telecity Group Plc, a British data centre operator with operations across Europe, forecast weaker than expected revenue growth this year, sending its shares to a two-year low.

The company, which targets the top end of the market from prime city-centre locations, said demand from sectors such as e-retail and video streaming services remained robust, and it expected 2014 revenue of 355 million to 362 million pounds, up from 325.6 million pounds in 2013.

Analysts said the expected revenue was below their own estimates and they expected to downgrade their earnings forecasts. Telecity shares fell to a two-year low of 632.5 pence and were trading down 10.1 percent at 656 pence at 1108 GMT.

Broker Liberum said the guidance was about 5 percent below its forecasts and it expected core earnings to fall by 5 percent this year and by 10 percent in 2015 as a result.

Analysts at Espirito Santo Investment Bank said the weak results and guidance implied a 7-8 percent cut to consensus 2014 earnings per share estimates, and a 15-20 percent cut for 2015.

"Telecity's results confirm our view that in spite of a strong demand environment (due to continued data traffic growth), the industry dynamics are deteriorating due to excess supply," they said.

Chief Executive Michael Tobin said pricing was "fairly stable", with demand underpinned by services like video on demand, where the multiple connections in Telecity's data centres keep internet connection times to a minimum.

"Since the middle of Q4 last year, we've seen a fairly strong upturn in demand and this is one of the strongest starts to the year we've had," he said in an interview on Wednesday.

He said capital expenditure this year would be 110-130 million pounds, broadly similar to a year ago. "We'll probably guide again to that number for 2015 and 2016," he said.

The company moved into Poland, Bulgaria and Turkey in 2013, although most of the 12MW increase in capacity came in existing centres in London, Dublin, Helsinki and Frankfurt, he said.

Telecity increased its dividend by 40 percent to 7 pence a share, and Tobin said dividend growth was "key".

Analysts said more detail on returns to shareholders could come when the group appoints a new chief financial officer.

Tobin said a shortlist had been drawn up but it could be a few more weeks before an appointment was made.

Telecity reported a 15.1 percent increase in 2013 revenue to 325.6 million pounds and adjusted core earnings up 18.4 percent to 153.2 million pounds, slightly below expectations on the top line and broadly in line for earnings.

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