12m Price Target: A$13.20 (this wasn't updated it seems?)
NextDC has entered into a new Syndicated Debt Facility agreement to arrange and underwrite A$1.5bn in senior debt facilities (5-year term).
Given the capital intensive nature of data centres, its ability to access flexible, low-cost debt has been a key focus for investors, so we see this update as a positive announcement with four key implications: (1) We believe NXT could save > A$10mn p.a. in interest expense through this refinancing, given we estimate it is paying 5.1% on existing facilities, while Industry feedback suggests a rate below 4% is reasonable. This compares to recent financing from global data centre peers in the US at just 1-2%; (2) on completion, this refinancing will increase NXT’s liquidity by A$400mn to A$1.6bn, supporting its significant ongoing investment pipeline (i.e we don’t forecast NXT to be FCF positive until FY27E); and (3) this refinancing will support any potential international investments, given the A$300mn facility is multi-currency; (4) In our recent research ‘What would it take for NXT to be a $20 Stock‘ the cost of debt was one of the three variables that we flexed, estimating that every 25bps cost of debt saving (vs. the 4.0% base-case) was worth A$0.46 to our NXT valuation.
We re-iterate our Buy rating on NextDC, which is facing an extremely positive industry backdrop, with the accelerated demand from key hyperscale customers providing opportunities to invest in value creative projects (i.e. ROIC > WACC) while it has also de-risked its FY21-24 earnings profile given contracted commitments (and options). Although acknowledging a premium valuation (47X FY21 EV/EBITDA), we believe it is the best secular growth story in our coverage so this is more than justified, and re-iterate our Buy rating.
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