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Why Redrow plc And TeleCity Group Plc Are Surging Today

Redrow (LSE: RDW) is surging today after the company’s first half results beat expectations. Indeed, the homebuilder announced that, for the six months to 31 December 2014 revenue jumped 54%, pre-tax profit had surged 92%, and earnings per share had nearly doubled to 19.9p. 

Off the back of these upbeat results, management has decided to pay an interim dividend of 2p per share, double last year’s payout. 

Looking ahead, the company reported that customer traffic and sales to date in 2015 are encouraging. So, the group could be in line to report a strong year all round if the first half’s performance continues. 

What’s more, as today’s release smashed City expectations, Redrow now looks severely undervalued. For example, the City was expecting the company to report earnings per share of 35.4p for its 2015 financial year. However, today’s numbers show that the company is likely to report earnings of around 40p per share for its 2015 financial year. 

On that basis, even after today’s double-digit gain, the group is only trading at a forward P/E of 8.2. 

Redrow could be the perfect company for any investors seeking an undervalued play on the UK’s booming house market. 

All-share merger 

TeleCity (LSE: TCY) is the best performing stock in London at time of writing as the company has announced that reached a non-binding agreement on an all-share merger with Interxion Holding N.V..

TelecityGroup, is a provider of data centres in key European cities, while Interxion is a European provider of cloud and data centre colocation services, so a merger between the two companies makes sense. Demand for data centre services is evolving rapidly, and the scale, of the enlarged business, will help lower costs and improve the offering to customers. 

And for TeleCity shareholders, this deal is great news. It’s estimated that synergies from the deal will save the enlarged group £600m, a sizeable sum — around six times TeleCity’s annual pre-tax profit.

Still, as of yet information regarding the deal is thin on the ground. However, looking at Interxion and TeleCity’s historic figures, the enlarged group’s appears to have bright prospects. Indeed, for the past five years, both TeleCity and Interxion have reported revenue growth in the region of 10% to 15% per annum.

When combined, the enlarged group should be able to accelerate this growth rate as customers are drawn to the improved product offering. TeleCity is currently trading at a forward P/E of 22.5, which looks expensive at first glance but the company’s rapid growth is worth paying a premium for. 

Your decision 

Still, as always, it remains your decision whether you buy, sell or continue to hold TeleCity or Redrow following this news and I strongly recommend that you do your own research before making any trading decision.

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Rupert Hargreaves has no position in any shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.