Thanks mate always good to read no matter who the broker/research is from
NEXTDC (NXT.AX) is a national provider of network dense colocation and hyperscale data centres. The company has invested significant capital in recent years (A$531mn FY15-18) expanding its facilities to take advantage of the industry-wide tailwinds of cloud migration (both public and private) and growth in big data. This drives our forecast 3yr EBITDA CAGR of +43%, the highest in our coverage. We note our FY19 sales/EBITDA forecasts are +3%/+9% above Bloomberg consensus and +4%/+8% above the midpoint of the company’s guidance — which has historically been conservative (FY16-18 avg. beat of +6%/+5%).
NXT has already begun investing in the next round of its data centres (which are 2-3X as large) as the company positions itself as the partner of choice for large public cloud deployments in Australia. Our analysis suggests these investments will create value for shareholders and generate a ROIC of 11.5%, comfortably above its cost of capital. We forecast this, even after capturing significant price deflation, due to: (1) increased investment into Australia from competitors; (2) the shift towards hyperscale deployments; and (3) the impact of software defined networks.
We derive our A$8.00 12-month target price for NXT via: (1) 85% weighted fundamental valuation of $7.95 using an EV/EBITDA-SOTP methodology; and (2) a 15% weighted M&A valuation of A$8.40 using peak LTM EV/EBITDA multiple. Our fundamental valuation comprises: (1) A$5.12/share for its operational facilities; and (2) A$2.83 for its growth facilities, which compares to the current share price that implies just A$0.85 in value for these projects. With our valuation implying a 34% upside potential, we initiate coverage on NXT with a Buy recommendation.
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