RBC raises target to A$100.00 PT

RBC Capital Markets, Jul 16, 2024 04:49 PM
Macquarie Technology Group (MAQ) – TP Raised to A$100.00

Thoughts:

- Lifting PT to $100, retain SP. Driven by greater asset backing from ownerships of IC2 and IC3E as MAQ bought back assets from Keppel. Should assist with MAQ securing an expanded debt package to fund IC3SW capex build.

- Keppel Acquisition Provides Strategic Flexibility. MAQ raised $190m ($100m equity, $90m debt) primarily to fund the purchase of IC2 and IC3 East from Keppel DC REIT. The acquisition provides flexibility and control over the campus that should support MAQ’s ability to grow its DC business over time, while also delivering on Government customer expectations regarding Australian ownership and data sovereignty. Removal of lease expenses is expected to be FY25 EBITDA neutral and marginally EBIT accretive (RBCe 2%).

- DA approval secured for IC3SW. DA in hand for the construction of a 38MW IC3SW targeting a CY26 completion. Management considering further expanding to 45MW which would take the total Macquarie Park campus IC3 East + Super West to 63MW. Discussions with hyperscalers regarding capacity are in the early stages, though management believes IC3SW will be fit for purpose to service generative AI workloads.

- Debt Outlook. We estimate +$500m in capex between now and end CY26 for the group, largely to fund the construction of IC3SW. We forecast expanded future debt package (RBCe at least 2x current total) plus organic cash generation to fund capex build next 3 years. We estimate peak ND/ EBITDA ~3.5x in FY27.

- Positive Read-Throughs from US Cloud Results. US Mega Cap Tech (AMZN, GOOG, FB, MSFT) cloud segments each recorded strong and accelerating revenue growth with AI an increasingly important driver of cloud and DC demand. Google Cloud revenue growth +28% pcp / AWS revenue growth +17% pcp / Azure revenue growth +31% pcp.

Valuation Our 12-month forward A$100.00/share price target is based on a 50/50 blend of our DCF and sum-of-the-parts valuation methodologies. SoTP: Applied 15x multiple to RBCe FY25e Cloud & Govt. EBITDA, 40x Data Centres and 12x Telecom. DCF: Core assumptions include: 1) cash flow forecast to FY32; 2) WACC 6.33%; and 3) terminal value calculated as a blended average of perpetuity growth (3.5%), terminal EV/EBITDA multiple (17.0x).