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The boards of CityFibre and Bidco have agreed the terms of a recommended cash acquisition of CityFibre by Bidco, at 81p per share. This represents a 92.9% premium to yesterday's closing price and a 47.3% premium to the placing share price on 28 July, 2017.
Cityfibre Infrastructure
CityFibre has published a trading update affirming that its 2017 results are in-line with market expectations. The company had a strong end to the year and will publish its full results on 24-04-18.
CityFibre (CITY): Corp Well ahead in the land grab | Lighthouse Group (LGT): Corp Middle Britain drives accelerating growth | Lok'nStore (LOK): Corp New site secured and financing strengthened | Tristel (TSTL): Corp Interims – small upgrade for 2019
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We believe BT Openreach's newly launched Fibre First programme is unlikely to have a material impact on CityFibre's FTTP roll-out and outlook. There is limited overlap between BT's currently announced 8 cities and those of CityFibre.
BCA Marketplace and stevia sweeteners developer Purecircle are the latest former AIM companies to be moving into the FTSE 250 index. The changes take place on 18 December and will take the number of former AIM companies in the FTSE 250 to 20 – although Booker and Paysafe are being taken over.
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CityFibre has signed a major strategic partnership with Vodafone to provide full fibre connectivity to one million UK homes in 12 existing CityFibre cities in the first phase, expandable to five million homes by 2025. Vodafone has made a minimum volume guarantee of 20% of homes passed.
CityFibre has announced a long-term strategic partnership with Vodafone which will provide the foundation to deliver full fibre connectivity to 20% of UK households. The minimum 10-year agreement will see initial deployment to 1 million homes by 2021, worth £500m over the first 20 years of the network life, with the right to extend to 5 million homes (20% of the UK) by 2025. Vodafone has made a minimum guaranteed spend commitment, in exchange for initial exclusivity, having demonstrated a willingness to lead fibre markets in Ireland and Germany thus far, and now too in the UK. After the exclusive access period, it will be incumbent on any major UK service provider to have a partnership with CityFibre to gain access to the only independent pure fibre network in 50 cities across the UK. This is the execution of a consistent and very clear strategic direction, which will now deliver to a grateful UK starved of appropriate bandwidth.
CityFibre* (CITY): The dawn of a new UK (CORP) | Blancco Technology Group* (BLTG): Please sir, I want some more (SELL)
Cityfibre Infrastructure Blancco Technology Group plc
H1'17 sales and adj. EBITDA are slightly weaker than expected, largely due to delays in public sector roll-outs. We have, therefore, reduced our 2017 EBITDA forecast, while raising our sales forecast to account for Entanet.
Interims to June 2016 deliver continuing positive EBITDA (£1.7m vs £0.4m at 1H16) from revenue of £9m, and a cumulative 4,235 connections (1H16: 3.490) from a contracted pipeline of 7,993 end points. While momentum remains strong, two new public sector deals for new cities will now fall beyond FY17, reviewing FY17 expectations but not dimming corporate logic or prospects. The addition of Entanet provides an in-house channel for encouraging dark fibre and lit ethernet sales, and we believe the contract for a national FTTH deployment remains inevitable and exciting: the £200m placing would not have been raised without the near-term prospect of an announcement of one or more major service provider(s) as anchors for a national programme, we believe. In a now much more benign regulatory environment to independent operators, CityFibre is the only alternative to BT Openreach, to enable gigabit Britain. Target 90p
The Competition Appeal Tribunal (CAT) has ruled in favour of CityFibre and other appellants (including BT) regarding various aspects of Ofcom's 2016 Business Connectivity Market Review (BCMR). In particular, this is expected to put the price controls on leased lines that had been outlined in the BCMR back for review.
CityFibre has announced a fully underwritten placing to raise minimum gross proceeds of £185m, as well as a subscription offer to raise up to £15mn. The proceeds will be used to fund the company's growth including construction of metro networks, construction of fibre to the home (FTTH) in five to ten towns, the acquisition of Entanet, a wholesaler of communication services, and the potential deployment of fibre to the tower connectivity for mobile operators.
Prelims are in line with consensus expectations unchanged at the January trading update: EBITDA of £2.5m (consensus £2.4m) was delivered from revenue of £15.4m (£15.0m), including revenue growth of 140% and maiden positive EBITDA (FY15: £-2.9m). Momentum in connected premises (3,962 at FY16) and a strong backlog of contracted premises still to be connected (3,558) means the total value of unreleased future contracted revenue has built to £106m at a typical gross margin of over 90%. Growth across public sector and business sectors remains strong, while mobile network operators are keenly aware of the benefits of CityFibre's national fibre network. Regulatory uncertainty is giving way to clear opportunity, with OFCOM’s policy proposals making encouraging noises around fostering “network based competition”. CityFibre continues to deliver on its strategy, in line with expectations: target 130p reiterated.
CityFibre's 2016 results are in-line with our forecasts with revenues rising 140% YoY to £15.4m, and adjusted EBITDA turning positive to £2.5m. With a significant network presence in 42 cities and initial contract value of £75m added last year, CityFibre is well positioned to continue to grow its revenues and EBITDA rapidly in coming years.
Independent Oil & Gas* (IOG): Pipeline MoU extension (CORP) | CityFibre* (CITY): OFCOM consultation (CORP) | iomart* (IOM): Auld faithful (CORP)
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Today's trading update confirms that the Company has finished FY16 with revenues and EBITDA slightly ahead of our forecasts. This marks the first year of positive EBITDA which has increased to c.£2m in H2 from £0.4m in H1.
CityFibre* (CITY): Business parks in the spotlight (CORP) | D4T4 Solutions* (D4T4): Data driven growth (CORP) | Sound Energy (SOU): Badile rig contract signed (BUY) | Patisserie Holdings (CAKE): A decade of revenue and profit growth (BUY) | Acal (ACL): Niche market position underpins potential (BUY) | KCOM* (KCOM): Interims highlight strategic focus (CORP)
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CityFibre* (CITY): Straight forward strategy, continued delivery (CORP) | Hurricane Energy (HUR): One down, one to go (BUY) | Gemfields* (GEM): Annual results (CORP) | Europa Oil & Gas* (EOG): Wressle discovery CPR (CORP) | Redcentric* (RCN): Network asset disposal (CORP) | Nasstar* (NASA): Interims on track (CORP)
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Interim results highlight the transformation in the business model over the last twelve months. The acquisition of the KCOM assets and the acceleration in organic growth, place CityFibre at the head of the pack in providing an alternative to truly high speed broadband access in the UK.
Typically strong interims demonstrate the benefit of the 230% increase in the number of dark fibre metro network cities, 48% growth in service provider customer base, and 243% growth in connected endpoints, to 3,490. With a further pipeline of over 2,500 endpoints contracted, visibility of growth and multi-year revenue are key features of the model with the organic addition of initial contract value of £28.8m in 1H16 alone, on top of the £25m associated with KCOM* network asset acquisition (announced December, completed January). EBITDA having turned sustainably positive, the model is demonstrably successful, and gaining increasing momentum through initiatives such as KCOM deal and the subsequent addition of Southampton, Portsmouth, Cambridge and other network assets acquired from Redcentric*, announced today. CityFibre’s straight forward model successfully demonstrates its position as the only national competitor for BT Openreach. We improve FY16 revenue (+3%), with further upgrade potential retained as trends develop. Target 130p reiterated.
CityFibre has released a trading update this morning which confirms that the Company has seen strong demand in H1 and is on track to meet FY16 forecasts. Significant new business wins on the enlarged network are evidence of strong momentum behind the roll out of high speed fibre optic broadband to metropolitan locations across the UK.
CityFibre* (CITY): Strong interim trading update (CORP) | Petra Diamonds (PDL): Trading and guidance update (BUY) | Atalaya Mining (ATYM): Q2 operations update (BUY)
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Servoca*: Acquisition (CORP) | CityFibre*: Demonstrating network benefits (CORP) | Quartix*: H1 in line for FY expectations (CORP) | Alumasc: Disposal and trading update (BUY)
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The transformational acquisition of the KCOM network assets supersedes the FY15 results; nonetheless the figures are broadly in line and our forecasts are unchanged. CityFibre is in an exciting growth phase and as recent contract wins demonstrate, the Company is successfully executing its strategy to accelerate the penetration and utilisation of its high speed fibre optic network.
While CityFibre’s prelims pre-date the £90m acquisition of KCOM’s national network estate, which has accelerated the business plan by approximately seven years compared with our original forecasts, performance shows continuing progress. Ongoing gross margin improvement to 86% highlights the potential for operational gearing once revenue gains scale from the enlarged estate, with costs currently structured to deliver that growth. CityFibre continues to prove cash conservation consistently ahead of expectations, alongside a stream of new partners, new contracts and new cities; moreover, as the only national fibre alternative to BT, the company remains well placed to benefit from inevitable demand for gigabit speeds.
CityFibre*: Filling increasing capacity (CORP) | The People's Operator*: Teething Problems Over (CORP) | Elecosoft*: FY 2015 earnings in line and board changes (CORP)
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CityFibre has announced two contract wins which highlight the value opportunity in the network acquired from KCOM earlier this year; a combined minimum total contract value (TCV) of £4.9m over a six-year period demonstrates the potentially to rapidly commercialise the enlarged network footprint.
CityFibre*: Proving the model (CORP) | Gooch & Housego^: Encouraging half-year update (HOLD) | Machinations: Analyst interview | Sound Energy: Cash payment received from Ophir Energy (BUY) | Aureus Mining: Debt deferral and mine plan update (U/R)
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Following the recent acquisition of KCOM's network assets for £90m, CityFibre has announced its second major contract win; the construction of a 50km ultra fast network in Southend backed by a local authority anchor tenant. This helps validate the business case as CityFibre expands its nationwide fibre optic network to bring high speed broadband connectivity to metropolitan areas. We expect more contract wins through 2016 and see substantial upside in the equity value towards our target price of 138p.
Ofcom's Strategic Review published this morning stopped well short of a radical break-up of BT but made it clear that Openreach needs to facilitate the roll out of high speed internet access through opening up its network. CityFibre have issued a response welcoming the proposed changes and we retain the view that the Company is well placed to scale-up as the UK accelerates fibre penetration from a low base.
CityFibre has announced the first service provider agreement this morning on its enlarged network footprint following the £90m acquisition of the KCOM's network assets. We expect further positive news on contract wins throughout 2016 and see significant upside in the share price towards our DCF based target price of 138p.
In line with the unchanged strategy for dark fibre infrastructure provision to enable service providers to offer gigabit broadband in UK towns and cities underserved by the incumbent operator, CityFibre has acquired the national network assets of Kcom, with network presence in 24 English cities. The £90m acquisition cost, in line with existing Total Contract Value /Capex parameters, positions CityFibre in 23 of the top 30 UK cities. With success already demonstrated in its existing eight-city portfolio, the deal dramatically accelerates CityFibre’s position, immediately transforming it into a national wholesale alternative to BT. The acquisition is funded by a £80m equity placing, in addition to £165m of debt facilities, providing capacity for continuing growth to the 50-city target. Target 130p (115p).
The acquisition of KCOM’s network assets is a transformational deal for CityFibre which effectively doubles the network footprint. This strategic move will accelerate the progress of the Group as it develops a nationwide high speed fibre optic network in metropolitan locations. Against the backdrop of relatively low fibre penetration in the UK, CityFibre represents a unique pure play on a growth market. We have raised our TP from 114p to 138p.
CityFibre has announced its first contract with Vodafone under a Master Services Agreement (MSA). The contract is in York and utilises CityFibre's existing 120km core metro network. The MSA sets out standard contractual terms under which CityFibre can supply fibre connectivity to all parts of Vodafone's UK network, for mobile site backhaul, corporate customer connections and interexchange connectivity. We expect CityFibre to build up a multi-city partnership with both Vodafone and 3UK in coming years, further enhancing its high growth revenue outlook. Adjusted EBITDA is expected to turn positive next year.
CityFibre (CFHL) has reported a 115% y-o-y increase in revenue and gains in its gross margin, showing the benefit of the rapid rollout of its fibre-optic networks and strong service demand. We highly rate CFHL’s attractive risk-minimising rollout strategy, whereby they first secure a long-term anchor tenant before any network build, and think that the company is set to emerge strongly into profit in future years. Our only major concern is if Ofcom carries out its current proposal to open BT’s dark fibre network and sets the access prices too low. Positively, Ofcom does appear to be aware of the risk to the sector, having rejected a similar proposal in 2012, due to the likely damage to competitors and the market.
Interims are in line with the continuing strong trajectory of city wins and network build-outs: consistent newsflow in the period highlights the ongoing increases in scale and utilisation of city networks. Progress at Peterborough has lifted total contract value (TCV) 50% since the local authority anchor agreement. The landmark Edinburgh contract win demonstrates the contagious nature of the appreciation of the benefits of a dark fibre network – the extension of the initial business service provider backed network to local authority use encourages both local take up and national awareness. While OFCOM dithers over the regulatory pressure it will impose on BT, CityFibre continues to deliver. Target 115p reiterated.
CityFibre has reported H1'15 revenues and adjusted EBITDA in-line with our expectations, putting the company on course to meet our full year forecasts. Sales of £2.7m rose 115% YoY, gross margin expanded to 86%, and the adjusted EBITDA loss reduced YoY. Contract momentum remains healthy as seen in the recently announced Edinburgh PSN related contract. Ofcom's proposals on BT Openreach's dark fibre does not seem to be affecting CityFibre's appeal to councils, mobile operators, and service providers. We, therefore, expect steady announcements on new anchor contracts in coming quarters as well, leading to positive adjusted EBITDA next year. Buy.
CityFibre has announced that as part of the Edinburgh PSN contract it has signed a deal with Commsworld to extend its network in the city to 294 council owned sites. The seven year contract has a total value of £5.6m, and can be extended to a maximum of 19 years. This follows an earlier contract with Commsworld in Edinburgh targeted at businesses, further proving CityFibre's underlying model of being able to raise profitability by serving multiple customer segments within the same city. We expect new contracts with national mobile operators as well, providing additional revenue in existing cities and helping expand the footprint to new cities. Buy.
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