NEXTDC Limited

NXT Details

Completion of $190 Million of Share Purchase Plan: NEXTDC Limited (ASX: NXT) is engaged in the development and operation of independent data centres in Australia. As on 27 May 2020, the market capitalization of the company stood at ~$4.36 billion. The company has successfully completed its Share Purchase Plan wherein it raised $191 million by issuing 24.6 million new fully paid ordinary shares. The company also announced that its commitments at Victorian data centre facilities have increased to over 27MW, bringing the customer commitments plus expansion options at Victorian data centres to ~60MW. 

Decent Increase in Revenue and EBITDA: During 1H20, revenue of the company went up by 8% to $97.7 million, and underlying EBITDA witnessed an increase of 21% to $50.9 million. NXT reported strong operating leverage with an increase of 34% in operating cash flows to $20.1 million. In the same time span, customers of the company went up by 16% to 1,264 and interconnections grew by 20% to 12,012. 


1H20 Financial and Operational Highlights (Source: Company Reports)

What to Expect: The company has a strong sales pipeline and expects material customer contract wins in the near term. The digital infrastructure business model of the company continues to build long term value through contracted capacity and tangible asset backing. In FY20, it anticipates revenue in the range of $200 million to $206 million and EBITDA in between $100 million to $105 million.

Impact of COVID-19: Despite the softer market conditions due to COVID-19, the company did not witness any noticeable change to its sales pipeline. It expects underlying demand for its premium data centre services to remain robust.

Stock Recommendation: The company retains a strong balance sheet with a cash balance of approximately $450 million and no debt maturities until June 2021. It is generating positive operating cash flows and expects strong tailwinds to accelerate the demand for its data centre services. The stock of NXT gave a return of 46.4% on YTD basis and a return of 14.08% in the past one month. During 1H20, EBITDA margin of the company stood at 54.1%, higher than the industry median of 27.7% and current ratio of the company was 3.42x as compared to the industry median of 2.56x. Considering the decent returns in the past one month, resilient business model and positive outlook, we recommend a ‘Hold’ rating on the stock at the current market price of $9.320, down by 2.51% on 27 May 2020. 

 
NXT Daily Technical Chart (Source: Refinitiv, Thomson Reuters) 
 
 

Bravura Solutions Limited

BVS Details

Strong Financial Position: Bravura Solutions Limited (ASX: BVS) is a provider of software products and services to clients operating in the wealth management and funds administration industries. As on 27 May 2020, the market capitalization of the company stood at ~$1.21 billion. During 1H20, the company reported decent growth in revenue and earnings. During the half-year, the company acquired Midwinter and FinoComp businesses, which are performing well with strong sales pipelines. In the same time span, revenue of the company went up to $135.1 million from $127.4 million in 1H19 and EBITDA witnessed an increase from $23.7 million to $25.5 million. Bravura is in a robust financial position with a cash balance of $100.3 million. The decent financial performance enabled the Board to pay an unfranked dividend of $0.055 per share.  


1H20 Financial Highlights (Source: Company Reports)

Growth Opportunities: Bravura is well placed to benefit from the strong demand for its product portfolio across all key markets underpinned by clients’ need for new products, digital capabilities, navigating maturing and evolving regulation and extracting operational efficiencies. BVS is prioritizing for UK Life & Pensions regulatory changes as growth drivers. The increasing product investment will continue to support the demand from clients and hence will deepen product functionality.

Valuation Methodology: Price to Cash Flow Multiple Approach (Illustrative)

Price to Cash Flow Multiple Based Approach (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As per ASX, the stock of BVS gave a return of 14.02% in the past six months and a return of 13.24% in the last one month. During 1H20, gross margin of the company stood at 92.6%, higher than the industry median of 84.2%. In the same time span, EBITDA margin of the company witnessed an improvement over the previous half and stood at 22.7%, up from 20.5% in 2H19. Considering the attractive returns in the past six months, decent financial performance and positive long term outlook, we have valued the stock using price to cash flow multiple based illustrative relative valuation method and have arrived a target price with an upside of middle single-digit (in percentage terms). Hence, we recommend a ‘Hold’ rating on the stock at the current market price of $4.92, down by 0.806% on 27 May 2020. 

 
BVS Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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