RBC Capital Markets, Jul 16, 2024 04:49 PMNEXTDC (NXT) – TP...

RBC Capital Markets, Jul 16, 2024 04:49 PM
NEXTDC (NXT) – TP Raised to A$21.00 Outperform

Thoughts:

Increasing Estimates and PT. We have updated our model to include revenue/EBITDA contribution for NEXTDC’s international segment from FY26 onwards. Also, we have fine- tuned our revenue/EBITDA contribution estimates for the VIC and NSW segments for FY24/FY25. Our new FY24/25/26 estimates call for revenues of A$414M/A$446M/ A$562M, Underlying EBITDA of A$200M/A$235M/A$294M, and capex including intangibles of A$893M/A$895M/A$904M. Our PT increases by A$2 to A$21, based on higher out-year cash flow estimates in our DCF model.
o FY24/25/26 revenues are higher by +0.4%/+0.2%/+0.8% compared to our prior estimates.
o FY24/25 EBITDA estimates are mostly unchanged. FY26e EBITDA is higher by +2.3% compared to our prior estimates.
o FY24/25/26 underlying EBITDA estimates are higher by +2.6%/+4.2%/+4.0% compared to our prior estimates.

A$1.3bn Capital Raising Accelerates Development. NXT plans to use the proceeds from the capital raising alongside existing liquidity to accelerate its development projects in Sydney/Melbourne and expansion in APAC.

Solid Operating Trends. For the Australia market, we are seeing strong demand for datacenter capacity from cloud and AI players across the Melbourne and Sydney markets. Demand is coming from a variety of U.S. customers, with potential demand set to increase from other regions. While hyperscale leasing thus far in calendar 2024 has primarily benefited NXT’s Australia-based peers, we believe NXT is well positioned to capture future demand as customers deploy across multiple sub-markets in each of Melbourne and Sydney. Meanwhile, we believe NXT’s core enterprise business continues to see strong demand and pricing trends.

FY24 Guidance Unchanged. Total revenue guidance is A$400-415M for net revenue growth of 6% to 9% from FY23’s net revenue of A$279.4M. The forward order book, at +68.8MW, should convert into revenues by the end of FY24 and ramp up over FY25-FY29. Underlying EBITDA guidance is A$190-200M. FY24 capex guidance of A$850M-$900M implies a sizable ~$600-$650M capex bill in the 2H in order to hit capex guidance for the full year.

Valuation
Our $21 price target is a 50/50 blend of our DCF ($23) and growth-adjusted EV/EBITDA multiple derived valuation ($18). DCF employs a WACC of 8.0% and a terminal-year FCF multiple of 15x. Our target multiple increases from 12.5x in light of the company’s continued growth prospects, and, in our view, proven execution of its development pipeline. Our price target supports an Outperform rating.