FY20 result: Pleasing revenue outlook, but yields a key focus; Stay Buy
31 August 2020 | 7:12AM AEST
NXT reported underlying FY20 Sales/EBITDA +1%/+1% vs. GSe and at the top end of its guidance range.
Key points:
Headline revenue trends remain constructive, with NXT guiding to FY21 revenue of $242-250mn (vs. GSe prior $242mn) and aiming for another record year of contract wins (implying c.18MW+ vs. GSe +14MW forecast). However, Enterprise MW growth of +0.7MW in 2H20 was softer than we expected, and below the 2MW p.a. run-rate NXT expects. Pricing was the other key concern, with yields declining -4% to $4.40m/MW in FY20 (-4% vs. GSe prior). This is a result of: (1) faster than expected ramp of lower priced hyperscale S2 contracts; and (2) timing impact of early-stage hyperscale deployments, given NXT is not yet receiving all power revenues from these customers (i.e. customer is paying 100% of the rent, but in the early weeks of the deployment they are not fully utilizing the power, so NXT revenue is lower).
Debt refinancing ahead: NXT noted that it is likely to soon announce a material debt-refinancing, to help fund its material capital program, which is likely to accelerate now the M3 land has been acquired. Given NXT floating notes can be redeemed in Dec-20, we would expect an announcement ahead of this time, and believe a material (> A$1.5bn) uni-tranche facility, at lower rates, is likely to be announced.
Overall, we revise NXT FY21-23 revenues +2%/-1%/+1% given FY21 guidance, modestly lower yields, and lower expected power pricing in CY21 (impacts revenue, no impact on EBITDA). We forecast +14MW of contract additions in FY21 (vs. +17.6MW in FY20) but with yields -3% to A$4.29. We lift our 12m TP +9% to A$13.20 (from A$12.10) given earnings revisions and 1X multiple increase (global peer-rating). Stay Buy
NXT Price at posting:
$12.37 Sentiment: Hold Disclosure: Held
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