NEXTDC Limited

Revenue & EBITDA on Rise: NEXTDC Limited (ASX: NXT) is engaged into the development and operation of independent data centres in Australia. It helps in enabling business transformation through data centre outsourcing solutions, and other services. With respect to the recently updated news of receiving commitment letters and agreeing to a syndicate allocation to refinance its existing A$300 million senior debt facilities, NEXTDC advised that it has now achieved financial close on the refinance of its existing A$300 million senior debt facilities.

In the recent past, Challenger Limited has increased its holding in the company to 7.42% voting right from earlier voting power of 6.36%.


Revenue & EBITDA Growth Trend (Source: Company Reports)
 
Financial Performance in 1H FY19: The revenue of the company was up by 17% to $90.8 million in 1HFY19 as compared to $77.5 million in 1H18, driven by higher contracted utilizations and increase in interconnections. The company reported a net loss of $3.1 million in 1HFY19 as compared to a net profit of $8.4 million in 1HFY18, primarily impacted by a significant rise in finance costs.
 
The underlying EBITDA stood at $42.2 million in 1HFY19, up by 26% as compared to $33.6 million in 1H18, with a 4.6% increase in the EBITDA margin on the prior corresponding period.
 
Revenue & EBITDA Guidance: Based on the performance of the first half of 2019, the revenue of the company is expected to be in the range of $180 million to $184 million and the underlying EBITDA to be in the range of $83 million-$87 million. The capex is expected to be between $430 million and $470 million. The guidance includes strong revenue growth, substantial operating leverage, customer-driven investments, and benchmark operational excellence.
 
Orders more than 14MW of capacity was received by NXT at its S2 data center site from where the revenue recognition will take place in 2H19, with the full run rate impact expected to be recognized in FY22 and beyond.
 
Stock Recommendation: The stock gained an 11.02% return on YTD basis. Moreover, the company is expected to drive higher margins and customer retention going forward, along with the expected lower interest and distribution income in the second half of 2019 driven by the property acquisitions. Hence, considering the decent fundamentals along with a healthy financial performance against prior corresponding period, we maintain our “Buy” recommendation on the stock at the current market price of $6.600 (down 2.222% on 30 May 2019).
 

Hansen Technologies Limited

Strategic Acquisition with Sigma- Support Growth Momentum: Hansen Technologies Limited (ASX: HSN) caters to the energy or utilities, telecommunications, and pay-TV industries. The diversification of the business comes in the form of delivering proprietary solutions across geographies and several sectors. It has a current market capitalization of circa ~$787.33 million. The company has recently issued 45,560 shares in accordance with the company’s Employee Share Plan at a price of $3.72 per share. The shares will rank Pari Pasu.
 
Recently, the company announced that it is has signed a definitive agreement with Sigma Systems (a leading catalog driven software provider) for its acquisition. The deal is likely to close on 31 May 2019. The acquisition will be funded fully through a new bank debt of AUD 225 million underwritten by RBC Capital Markets. The enterprise value for the acquisition is AUD 166.2 million, representing an EV/EBITDA acquisition multiple of 8.3 times calendar year 2018 normalized EBITDA. CY18 revenue for Sigma was AUD75.5 million and CY18 normalized EBITDA was AUD19.4 million, equating to a normalized EBITDA margin of 25.7%.
 
The strategic rationale for the acquisition includes several factors such as a high-quality business, leader across the globe in providing enterprise catalog-driven software products to several key sectors. It is well designed to capture growth opportunities from the rollout of new telecommunications services such as 5G. Moreover, the earnings per share are expected to be accretive in FY20, excluding non-IFRS measures like amortization of acquired intangibles.
 

Result Summary 1HFY19 (Source: Company Reports)
 
The operating revenue for Hansen in 1HFY19 was $112.4 million, down by 5.1% on 1H18 and consistent with 2H18. This was primarily due to lower non-recurring revenues, underpinned by lower project work which followed the large part of work completed in the first half of FY18 related to the implementation of Power of Choice for the customers in Australia, and lower one-off license fees. In January 2019, the group exhibited a $3.2 million improvement in the working capital position. The company repaid debts of $4.7 million during the half reducing the debt burden and supporting a strong balance sheet position to fund for future growth.
 
Revenue Guidance: With 1H19 revenue being higher than anticipated, the company expects 2H19 revenue to be in-line with 1H19. Whereas the management had guided previously for a stronger 2H19 revenue as compared to 1H19.
Hence, considering the decent fundamentals of the company along with the acquisition of Sigma, we believe the company is placed to derive synergies going ahead. Moreover, with a decent financial performance and favorable outlook for the company, we recommend a “Buy” rating on the stock at the current market price of $3.990 per share.

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