CityFibre surges 90% on bid approach: could this FTSE 250 peer be next?

Could the FTSE 250 (INDEXFTSE:MCX) telecoms sector become increasingly popular after the bid approach for CityFibre Infrastructure Holdings plc (LON: CITY)?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares in CityFibre (LSE: CITY), a provider of wholesale full fibre infrastructure in the UK, increased by 90% on Tuesday after it became the subject of a bid approach. The company’s board has agreed the terms of a cash acquisition by Bidco. It consists of 81p per share in cash, which is a 92.9% premium to the closing price of the company on the working day prior to the offer being announced.

Could this be the start of further acquisition activity in the telecoms sector? As a result, could a FTSE 250 sector peer be worth a closer look?

A done deal?

But first, CityFibre. The board is recommending that shareholders accept the deal. Already Bidco has irrevocable undertakings and a letter of intent from 67.8% of shareholders in the company. As such, the chances of it being concluded seem to be relatively high, and it would represent an all-time high valuation for the business. As such, the prospect of investors who are set to make a profit from the deal deciding to vote against it seems relatively low.

Improving outlook

Alongside news of the bid approach, CityFibre also released its full-year results. They showed a rise in revenue of 126%, while gross profit moved 48.4% higher. During the period, it was able to deliver on a £201.8m fundraising which is being used to fund growth of the company’s full fibre network and to pay for the acquisition of Entanet.

However, the company’s net loss increased to £16.6m from £12.6m in the previous year. This shows that while it has the potential to become a highly profitable business in the long run, in the near term it may struggle to deliver a financially-appealing outlook. As such, the acquisition approach seems to be good news for the company’s investors.

Further bid activity?

Also operating within the telecoms sector is FTSE 250-listed Talktalk (LSE: TALK). The company has experienced a difficult period which has had a negative impact on its financial performance. However, it now seems to have found the right strategy under a refreshed leadership team, with the company’s bottom line forecast to rise by 62% in the current year and by a further 20% next year.

Despite such a strong rate of growth, Talktalk trades on a price-to-earnings growth (PEG) ratio of just 0.9. This suggests that it could offer growth at a reasonable price. And since dividends per share are expected to increase by 78% next year, it appears as though the company is optimistic about its investment outlook.

Certainly, the UK quad-play sector is becoming increasingly crowded and remains highly competitive. But with a strong position and the potential for further growth due to its focus on efficiency and customer service, it would be unsurprising for the company to become a takeover target over the medium term.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of TalkTalk Telecom Group plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »