IXE Europe and the price of power

An interesting chat to IXE Europe today about their results for last year.

Their business is growing pretty well after investing in expansion of data centres. Not enough to please the market this morning, though. But there are two interesting trends underneath the surface.

First, the power requirements of the data centres are continuing to increase. That's a substantial slug of revenue now and because, during the year, IXE saw its costs rise substantially, margins were slimmed. They're now rewriting contracts to pass through any change in the price.

Secondly, though, they're moving to bigger data centres with better economies of scale. The number of centres increased by 40% - the amount of space by 57%. That should help margins over the longer term as economies of scale come through.

Business must be doing well, as there's one new constraint on the company. So far, it's been able to pick up distressed assets for ten cents on the dollar - such as the data centre in Munich built by KPNQwest. As other companies begin to notice that the market's making money again, assets are getting bid up - which means IXE may have to build its own in future on greenfield sites.

I rather like the stock though at 22x 2008 earnings it's not cheap. But it's not got the risk of 'pure tech' - it doesn't buy the servers, it just provides industrial grade power and connectivity. Clients are responsible for the quick-obsolescence stuff that sits in the datacentre. Yet it has the high growth of tech stocks. And because it's a recurring income play, once it hits profit, margins and earnings should grow fast.