NextDC Continues to Benefit From Growing Demand for Hybrid Cloud Solutions

We maintain our AUD 10.85 fair value estimate for no-moat NextDC following the release of fiscal 2021 results. Underlying EBITDA increased 29% to AUD 135 million, broadly in line with our forecasts. The result was underpinned by strong customer billing growth and improved operating leverage. We expect the COVID-19 pandemic has accelerated the digital transformation of many businesses, expediting the shift to hybrid cloud solutions and benefiting co-location providers like NextDC. To meet growing demand, NextDC continued to expand. Built capacity increased 22% to 96MW in the year with approximately 79% contracted. At current prices, NextDC screens as overvalued, trading at an 18% premium to our fair value estimate.