NextDC Earnings: Strong Demand Bodes Well for Long Term; Valuation Raised

NextDC’s fiscal 2023 (ending June 2023) result highlighted strong data center industry growth, with the company building 19.5 MW of capacity in fiscal 2023 with plans to build out a further 47.9 MW of capacity in fiscal 2024 that would imply the addition of around 60% capacity to its data center fleet over those two years. The company has also contracted 38 MW of capacity in the second half alone to end the fiscal year with 122.2 MW of contracted capacity. Total planned capacity has also more than doubled to 970 MW from 441 MW at the first-half 2023 result briefing. The costs associated with catering for this surge in demand and the projected future demand mean the anticipated earnings recovery has been pushed back, with the company guiding to underlying EBITDA of between AUD 190 million and AUD 200 million in fiscal 2024, broadly flat on the AUD 193.7 million reported in fiscal 2023. Fiscal 2024 capital expenditures are also forecast to increase to AUD 850 million to AUD 900 million from AUD 690.4 million in fiscal 2023 to support customer orders and accelerate expansion of existing projects, including M2 and M4. We lift our fair value estimate to AUD 12.00 from AUD 11.00 previously. While our near-term earnings forecasts have been reduced due to the extra costs of rapid expansion, this has been more than offset by increases in our long-term forecasts. We see the shares as slightly overvalued.