|Shares Out. (in M):||62||P/E||NA||NA|
|Market Cap (in $M):||1,376||P/FCF||NA||NA|
|Net Debt (in $M):||247||EBIT||0||0|
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CyrusOne (ticker “CONE”) is the data center subsidiary of Cincinnati Bell (ticker “CBB”). CBB recently closed an IPO of ~30% stake in CONE as a REIT on January 24, 2013. CyrusOne is a high quality business: recurring revenues under multi-year contracts, diversified & sticky customer base, high returns on capital, and ~20% growth with favorable secular trends. CyrusOne is a better business than comparable data center REITs and should grow faster, yet trades at a significant discount. I believe this opportunity exists because of: (1) management’s incentive to price shares conservatively in the IPO (discussed later) and (2) equity research has not been available until very recently (February 12th) (banks involved in the IPO must wait 25 calendar days from pricing before publishing research). I estimate shares are worth $32-35 within 1 year (approx. 45-55% upside). I also believe there is likely significant strategic interest in CONE from companies such as Digital Realty and CoreSite, which could derive significant financial and strategic benefits including an improved footprint, higher growth, and earnings accretion due to synergies and relative valuation discrepancies.
Quick Business Overview
CyrusOne owns / operates a portfolio of 23 data centers, which are mostly located in Texas (Houston, Dallas, Austin) and Greater Cincinnati.
CyrusOne benefits from several secular tailwinds:
Basic financial info:
I view LQA as a good way to show run-rate earnings given recurring nature of earnings and high growth trajectory.
CyrusOne is a better business than data center REIT comps, but trades at a discount to the comps:
I believe there would likely be strategic interest in CyrusOne from companies such as Digital Realty and CoreSite
Margin expansion opportunity
Longer-term opportunity to optimize balance sheet
Why Does This Opportunity Exist?
What is the Opportunity? (1yr Price Targets)
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