NextDC's Customers Will Bear the Brunt of Carbon Pricing Risk in the Absence of a Greener Substitute

We maintain our AUD 10.85 fair value estimate for no-moat NextDC on tempered profit forecasts offset by time value of money. We continue to expect NextDC to gradually improve profitability through mix shift toward higher margin interconnection revenue and improved operating leverage, albeit at a marginally lower rate than previously forecast to better align with comparable peers. At the current share price, NextDC screens as overvalued trading at a 16% premium to our fair value estimate.