www.milkstone.co.uk 10 February 2010__ Telecity Group plc (TCY.L) BUY Price/Target: 377.7p / 437.0p Preliminary results 2009

Market Data  Telecity Group (LSE: TCY) specialises in the design, build and management

No. of Shares 198.1m of highly connected and secure data centres throughout Europe. Ticker TCY Headquartered in London, UK, the Group operates 22 data centres located Market Cap £748.2m in prime positions for commerce and connectivity, including Amsterdam, Listing Main Dublin, Frankfurt, London, , Milan, Paris and Stockholm. 52 wk range 156.5p – 432.5p Next News IMS – May ‘10 Strong growth in Europe and further good progress in the UK... Sector Software & Computer Services Telecity Group (TCY) today reported excellent Preliminary results ahead of our earnings expectations. Revenue was in-line at £169.4m (2008: £133.0m) but adjusted pre-tax profits came in at £36.6m (2008: £16.4m) ahead of our forecasts of Net Cash/(Debt) (Est) £(57.9)m £30.0m. This was largely due to a change in depreciation policy which reduced the Net debt/Equity (Est) 22% depreciation charge by £3.2m, slightly improved gross margins and tight operational Net Asset Value (Est) 108p cost control. Earnings per share were consequently higher, 17.6p against our EBITA Interest Cover (Est) 11.0x expectation of 13.7p. Growth was particularly strong in Europe where the addition of EV (Est) £806.1m three new facilities in Paris, Stockholm and Milan led to an increase of fitted out space of 31.5k sq.m (+ 21% over 2008) and operating profits up four-fold to £15.7m. The management team seem confident that demand for its services is still there and Share price performance: Abs growing and that supply is still constrained. With the current financial year having 1 mth -8% started well and more than 90% of revenues from recurring income, the Group look 3 mths +14% set for another excellent performance in the current year. Reading between the lines 12 mths +89% we should expect another significant new facility announcement in the current year, over and above those already planned. We have upped our 2010 Capex number to from £50m to £75m as a result. With further margin improvement expected we have Analyst: Ray Burgum raised our PBTA forecasts from £42.0m to £46.3m and e.p.s. from 18.4p to 19.6p, +44 (0)161 242 8245 albeit on a higher tax charge. Our DCF valuation suggests a target price of 437p [email protected] currently, 16% above the current share price. The shares are currently trading on an

Sales: Roger Jones EV/Ebitda rating 9.9x, not overly expensive for a Company with good cash flow +44 (0)161 242 8243 metrics and high levels of recurring income. We reiterate our BUY recommendation. [email protected]

Year end December 2008A 2009A 2010E 2011E Sales (£m) 133,040 169,383 200,950 229,776 EBITDA (£m) 40,426 63,915 81,496 95,858 Adj PBT (£m) 16,433 36,605 46,307 58,645 Tax (%) Cr 9% 19% 28% EPS (p) 7.8 17.6 19.6 22.0 DPS (p) 0.00 0.00 0.00 0.00 Dividend yield (%) 0.0% 0.0% 0.0% 0.0% FCFPS (p) -16.8 -14.7 -0.9 13.7 P/E (x) 48.3 21.5 19.2 17.1 EV/Sales (x) 6.06 4.76 4.01 3.51 EV/EBITDA (x) 19.9 12.6 9.9 8.4 Growth PBT (%) 7916% 123% 27% 27% Source: Proquote Growth EPS (%) 1435% 124% 12% 12%

For important disclosure information relating to Milkstone Limited, including analyst certification, investment banking relationships (if any) with any companies mentioned in this report and potential conflicts of interest please refer to the disclosures and disclaimer section at the back of this report. Milkstone Limited is a member of the and is authorised and regulated by the Financial Services Authority. 10 February 2010

Disclosures & disclaimers

% of recommendations % of recommendations % of recommendations

(All stocks) (Corporate stocks) (Non-corporate stocks)

Updated quarterly. Last updated 10th February 2010.

Milkstone Limited: Analyst certification

Ray Burgum

Analyst Amino Tech CSR Chloride Group Iomart Group NCC Group Pace Phoenix IT Group Telecity Group Volex Group Wolfson Micro Xaar Xploite

David Gorman

Analyst Bodycote Brammer Byotrol  Formation Grp Holidaybreak Lookers Morson Grp Norcros Renold Stobart Group UK Coal

Peter Dzedzora Analyst Airea  Autologic Hldgs Brown (N) Grp Carr’s Milling James Halstead  NWF Grp PZ Cussons  Slimma Wynnstay Grp

Key:  = RB has financial interest  = DG has financial interest

 = PD has financial interest

Milkstone Limited: Recommendation Guide

Buy: Expected to outperform the FTSE All-Share Index by 10% or more in the next 12 months

Add: Expected to outperform the FTSE All-Share Index by up to 10% in the next 12 months

Hold: Expected to match the FTSE All-Share Index in the next 12 months

Reduce: Expected to underperform the FTSE All-Share Index by up to 10% or more in the next 12 months

Sell: Expected to underperform the FTSE All-Share Index by 10% or more in the next 12 months

Source: Milkstone Limited

2 10 February 2010

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3 10 February 2010

Price / Target Telecity Group plc 377.7p / 437.0p Buy

Income Statement (£m) 2008A 2009A 2010E 2011E Balance Sheet (£m) 2008A 2009A 2010E 2011E Year end December Year end December Sales 133,040 169,383 200,950 229,776 Property, Plant & equipment 206,111 286,283 332,443 356,480 Cost of Sales -69,805 -80,656 -91,892 -101,656 Goodwill 31,394 31,394 31,394 31,394 Gross Profit 63,235 88,727 109,058 128,120 Other intangible 17,771 14,724 13,550 12,376 Total Operating Expenses -22,809 -24,812 -27,562 -32,262 Other 8,218 8,511 8,511 8,511 EBITDA 40,426 63,915 81,496 95,858 Non current assets 263,494 340,912 385,898 408,761 Depreciation -20,952 -23,639 -28,840 -30,963 EBITA 19,474 40,276 52,657 64,895 Inventories - - - - Amortisation -1,151 -1,174 -1,174 -1,174 Trade receivables 27,965 19,483 21,483 23,483 Exceptional items 4,737 2,689 2,500 2,500 Cash 51,506 32,140 30,103 56,900 Net Interest -3,041 -3,671 -6,350 -6,250 Other 0 0 0 0 Reported PBT 20,019 38,120 47,633 59,971 Current assets 79,471 51,623 51,586 80,383 Adjusted PBT 16,433 36,605 46,307 58,645 Tax 5,313 -3,398 -9,027 -16,667 Trade payables -35,694 -47,089 -49,089 -51,089 Tax (%) Cr 9% 19% 28% Short-term debt -7,110 -6,540 -6,540 -6,540 Reported earnings 25,332 34,722 38,606 43,305 Long-term debt -73,683 -81,467 -81,467 -81,467 Cash flow (£m) 2008A 2009A 2010E 2011E Other -37,974 -36,420 -40,764 -47,119 Reported PBT 20,019 38,120 47,633 59,971 Total Liabilities -154,461 -171,516 -177,860 -186,215 Depreciation & Amortisation 22,103 24,813 30,014 32,137 Change in working capital 7,448 9,240 0 0 Net assets 188,504 221,019 259,625 302,929 Interest, tax & pref dividends -1,874 -3,146 -9,748 -15,277 Other -1,784 1,844 5,350 5,250 Share capital 396 396 396 396 Operating cash flow 45,912 70,871 73,248 82,082 Share premium 74,127 74,127 74,127 74,127 Capex -79,190 -99,929 -75,000 -55,000 Retained earnings 92,917 134,706 173,312 216,617 Free cash flow (FCF) -33,278 -29,058 -1,752 27,082 Other 21,064 11,790 11,790 11,790 Acquisitions & Disposals 400 0 0 0 Minority interest - - - - Dividends paid 0 0 0 0 Total Equity 188,504 221,019 259,625 302,930 Financing 42,061 7,412 -285 -285 Other items 0 0 0 0 Valuation 2008A 2009A 2010E 2011E Net Cash flow 9,183 -21,646 -2,037 26,797 P/E 48.3 21.5 19.2 17.1 Net Cash/(Debt) -29,287 -55,867 -57,904 -31,107 EV/Sales (x) 6.1 4.8 4.0 3.5 Ratios 2008A 2009A 2010E 2011E EV/EBITDA (x) 19.9 12.6 9.9 8.4 Sales growth 36% 27% 19% 14% EV/EBITA (x) 41.4 20.0 15.3 12.4 EBITA growth 228% 107% 31% 23% FCF Yield (%) -4% -4% 0% 4% EPS growth 1435% 124% 12% 12% Dividend Yield (%) 0% 0% 0% 0% DPS growth - - - - Effective tax rate Cr 9% 19% 28% Gross margin 47.5% 52.4% 54.3% 55.8% Net Debt/Equity (%) 16% 25% 22% 10% EBITDA margin 30% 38% 41% 42% Net Debt/EBITDA (x) 0.7 0.9 0.7 0.3 EBITA margin 15% 24% 26% 28% EBITA interest cover (x) 6.4 11.0 8.3 10.4 ROCE 7% 13% 15% 17% Dividend cover (x) 0 0 0 0

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