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Results: Is Macquarie Telecom Group Ltd (ASX:MAQ) better than Telstra Corporation Ltd (ASX:TLS)?

In morning trade the Macquarie Telecom Group Ltd (ASX: MAQ) share price has edged lower following the release of its full year results after the market closed on Wednesday.

At the time of writing the data centre, cloud, cyber security, and telecom company’s shares are down just under 1% to $23.51.

Here is how the company performed in FY 2018 compared to a year earlier:

  • Revenue increased 6% to $233.1 million.
  • Hosting revenue increased 16% to $95.3 million.
  • EBITDA jumped 19% to $47.8 million.
  • Hosting EBITDA rose 24% to $26.8 million.
  • Net profit after tax increased 20% to $17 million.
  • Earnings per share of 80.9 cents.

Once again the company’s Hosting segment was the star performer and the catalyst for growth in FY 2018. This latest strong performance means that over the last three years the segment has grown revenue by a compound annual growth rate (CAGR) of 16.5% and EBITDA by a CAGR of 33%.

The Hosting segment’s fine form was complemented by a positive result from its Telecom segment. Although the segment delivered just a slight increase in revenue to $142.3 million, EBITDA increased 12% to $21 million.

A key driver of its strong result was the company’s Colocation business which is billed through both Hosting and Telecom segments. Colocation revenue grew 18.4% to $33.4 million and EBITDA jumped 19.4% to $15.6 million.

Outlook.

Management expects EBITDA to continue growing in FY 2019, however the first half will be flat on the second half of FY 2018 due to one-offs or abnormal items received and further investment in sales growth.

The latter includes its plan to capture a greater slice of the fast-growing cloud market by expanding its existing Macquarie Park Intellicentre to a 43MW Campus from 10MW today.

Should you invest?

At 29x earnings I think its shares are about fair value now. However, given its exposure to the booming cloud market I feel it could still be a great buy and hold investment.

Furthermore, while growth in FY 2019 might be a touch slower than what we’ve seen over the last three years, I believe increased investment in its data centres is a necessary step for management to take and could lead to bumper earnings growth in the future.

All in all, I think Macquarie Telecom is a great alternative to the pricey NEXTDC Ltd (ASX: NXT) and slow-growing rival Telstra Corporation Ltd (ASX: TLS).

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Motley Fool contributor James Mickleboro owns shares of NEXTDC Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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