NextDC Rated New Buy at Goldman Sachs; PT A$8, page-62

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10/04/19

10:14

Post #: 38073646
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Originally posted by Swage_17: ↑

I'm new to this company and considering investing in it. Key reason for not taking a position is that there is negative NPAT. With such a large EBIT (around $80 million), why is there no NPAT? What do they remove from the EBIT? Is it the cost of building the new data centres?

On the plus side, their revenue has been building up consistently at strong rates. I take that as a good sign. EBIT has also been going up consistently. Consistency in improving revenue is over many years is a great sign,

However, it seems as though they are investing in new data centres and the upfront cost of these is leading to negative NPAT. At this rate there is no guarantee there would be a profit even after 5 years. What if their data centres don't get booked out? Company goes completely broke?

What am I missing?

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$80M is EBITDA.
So depreciation drops that a lot.
Interest expense drops the EBIT.

By investing a lot of capital for new growth, they have reduced that Operating Leverage they had built up.

At the moment they either aren't (M2) or can't (S2) meaningfully build the revenue to offset that expense quick enough.

NXT Price at posting: $5.92 Sentiment: Hold Disclosure: Held
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