Leighton to sell NextGen

Who will be the highest bidder?

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

Following a strategic review, Leighton Holdings (ASX: LEI) has announced that its telecommunication assets are up for sale. These assets encompass the national fibre optic network, NextGen Networks, data centre specialist, Metronode, and Infoplex, which offers cloud computing-related services.

Leighton's market capitalisation is less than $6 billion and with brokers forecasting an asking price of at least $1 billion for the assets, this is a significant divestment. While the review identified these telecom assets as non-core, the assets will be attractive to other industry players, particularly the strategic position of NextGen.

Looking past the headline, it is interesting to consider the growth prospects, and more importantly, the profit potential of data volumes, data centres, and cloud computing. With so many companies competing to gain scale, the timing of Leighton's exit may be a warning to investors that the market is getting a little "hot".

As the National Broadband Network (NBN) rollout continues and Telstra's (ASX: TLS) previous monopoly power is diminished, the dynamics of the telecom sector and participants are altering too. TPG Telecom (ASX: TPM) already owns significant infrastructure but could look to increase its footprint by purchasing NextGen. Vocus Communications (ASX: VOC) also owns a valuable fibre network that it would no doubt be interested in adding to, however NextGen would most likely be too big a bite for the $130 million company.

Data Centres (DC) have been getting a lot of attention recently, with Macquarie Telecom (ASX: MAQ) recently signing a large government contract to provide managed hosting services in its DC. NextDC (ASX: NXT) is another player in the DC space, run by successful entrepreneur Bevan Slattery. Both companies may be interested in the Metronode business as they look to build further scale into their product offering.

Foolish takeaway

While there is going to be significant growth in data and cloud usage in the future, exactly how that plays out is the million-dollar question. Investors need to always remain objective when assessing investments in new technology areas such as cloud computing, as industries can grow yet not provide commensurate profits for investors. Investing with a margin of safety is as important as ever.

Our "Top Stock for 2012-13" is already on the move, yet we think the stock still has an exciting future ahead. Get the name, ASX stock symbol, and full research case for this remarkable software company FREE! Click here for this brand-new special report.

More reading:

Motley Fool contributor Tim McArthur doesn't own any of the stocks mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »