NEXTDC Limited

NXT Details

Recent Updates: NEXTDC Limited (ASX: NXT) is a data centre solutions provider and operates nine data centres in Australia.

• Recently, the company informed the market that it had increased its voting powers from 18.8% to 19.99% in Sovereign Cloud Holdings Limited.
• In another update, the company announced that Craig Ian Scroggie, a Director in the company, has acquired 147,859 performance rights for nil consideration.

FY21 AGM Highlight:

• In FY21, the company witnessed a rise of 23% year over year in its Data centre services billing. Further, contracted utilisation and interconnection revenues increased by 8% and 13%, respectively, on a year over year basis. The rise can be attributed to decent ecosystem enhancement, and higher recurring monthly revenue.
• Notably, in FY21, underlying EBITDA increased by 29% on a pcp basis, whereas operating cash flow went up by 148%, underlining the intrinsic operating leverage of NXT.
• The company posted revenue growth of 23% YoY to $246.1 million in FY21, due to the increased customers (up 13% YoY) and contracted utilisation (up 8% YoY).
• Some of the development initiatives during the year included the completion of the S2 Sydney fit-out. In addition, S4 Sydney land offers a long-term development capacity for a hyperscale technology campus to NXT. Notably, the company has planned S3 and M3 construction programmes for practical completion in 2H22 and 1H23, respectively.
• At the end of the period, liquidity amounted to $1.7 billion, including cash and undrawn debt facilities. NXT generated an operating cash inflow of $133.2 million in FY21, up by 148% YoY.
  

Customer’s Highlight; Analysis by Kalkine Group

Risk Analysis: The company faces the risk of technological changes, delays in project installations due to COVID-19. Further, stringent regulations, stiff competition, integration risk and foreign currency fluctuation risks may have a denting effect on the company’s agility, innovativeness, and ability to compete efficiently.

Outlook: The company expects the FY22 data centre services revenue to be between $285 and $295 million, depicting a 16-20% rise over FY21. NXT’s underlying EBITDA is estimated between $160-$165 million, indicating an increase of 19-23% over FY21. The capital expenditure guidance is expected to be between $480-$540 million for FY22. 

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock’s historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of NXT delivered a negative return of ~9.58% in the past one week. The stock is trading lower to the average of the 52-week low price of $9.8 and the 52-week high price of $14.085. The stock has a support and resistance level of $9.00 and $13.5, respectively. The stock has been valued using the EV/EBITDA multiple-based illustrative relative valuation method and arrived at a target price with a correction of high single-digit (in percentage terms). The company might trade at a slight premium to its peers, considering an increase in customers, data centre services demand, revenue in FY21, upgraded guidance for FY22, etc. For valuation, a few peers like Bravura Solutions Ltd (ASX: BVS), Integrated Research Ltd (ASX: IRI), Infomedia Ltd (ASX: IFM), and others have been considered. Considering the valuation indicating correction, emergence of the more contagious coronavirus variant, ongoing efforts in streamlining operations, and key risks associated with the business, we recommend investors to book profit and give a “Sell” rating on the stock at the current market price of $10.21, as on 25 January 2022, 10:45 AM (GMT+10), Sydney, Eastern Australia.

NXT Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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