InterXion Holding N.V. IPO: Content and Connectivity Hubs Look Promising

Includes: DLR, EQIX, INXN, RAX
by: IPOdesktop

InterXion Holding N.V. (NYSE:INXN) expects a $233 million IPO with a market capitalization of $780 million at a price range mid-point of $12. Scheduled for Friday, January 28, 2011. Six others scheduled for the week of January 24 totaling $3 billion

INXN provides co-located data centers and has 93% recurring income. Its market is projected to grow 34% annually through 2014.

Adjusting for a non-recurring finance charge, INXN priced at 32 times annualized, adjusted earnings. Compare to Rackspace (NYSE:RAX) at 32x; Equinix (NASDAQ:EQIX) at 129x; and Digital Realty Trust (NYSE:DLR) at 107x.

INXN Valuation Metrics

INXN supports over 1,100 customers through 28 data centers in 11 countries enabling them to protect, connect, process and distribute their most valuable information. The data centers enable customers to connect to a broad range of telecommunications carriers, internet service providers and other customers.

INXN’s data centers act as content and connectivity hubs that facilitate the processing, storage, sharing and distribution of data, content, applications and media among carriers and customers, creating an environment that we refer to as a "community of interest".

According to the Cisco Visual Networking Index, Global IP traffic is expected to grow at a compound annual growth rate of 34% from 2009 to 2014. Growth in internet traffic, cloud computing and the use of customer-facing hosted applications are driving significant demand for high quality carrier-neutral colocation data center services. This demand results from the need for either more space or more power, or both. This growth is driven by, among other factors, decreased cost of internet access, increased broadband penetration, increased usage of high-bandwidth content, increased number of wireless access points and growing availability of internet and network based applications.

Non-recurring Finance Expense
Net finance expense was 15% of revenue for the nine months ended September 30, 2010 and 3% of revenue for the nine months ended September 30, 2009. The increase in net finance expense for the nine months ended September 30, 2010 was due to a one-time finance expense of €10.2 million and higher interest expenses of €8.5 million associated with the original notes. The one-time finance expense was the result of expensing termination fees, the costs associated with unwinding interest rate hedges and the write-off of deferred financing fees related to previous credit facilities.

Adjusting for the non-recurring finance expense from 15% to 4% means an 11% increase in profit margin. Assuming a 50% tax rate then profit increase is 5.5% of revenue, to $18.4mm for the September 2010 nine months.

Competition includes

  • Carrier-Neutral Colocation Data Centers: Equinix, Telecity and Telehouse. These companies are chief competitors.
  • IT Outsourcers and Managed Services Provider Data Centers: HP (NYSE:HPQ), IBM (NYSE:IBM), Logica, Rackspace, Sungard and Terremark (NASDAQ:TMRK).
  • Wholesale Data Centers: Digital Realty Trust (DLR) and Global Switch.
  • Carrier-Operated Data Centers: AT&T (NYSE:T), BT (NYSE:BT), Cable & Wireless, Colt Telecom (OTCPK:CLTZF), Savvis (NASDAQ:SVVS) and Verizon (NYSE:VZ).

INXN expects to receive $177 million from the sale of 16.25mm shares by INXN. Shareholders intend to sell 2.3mm shares. INXN intends to use the proceeds for general corporate purposes, including, without limitation, capital expenditures, including the construction of new data centers.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.