Nextdc Limited (NXT)
HOLD

All in on CAPEX

 28 Aug 2023
Sector: Information Technology

RESULTS ANALYSIS

Need To Know

  • Soft result. Weaker margins but strong contracted volume growth. FY24 CAPEX guidance ahead of market expectations.
  • FY24 EBITDA guidance ~6% below consensus. 
  • Industry tailwinds remain a positive for NXT. Short-term operational difficulties expected to be overlooked due to greater focus on contract wins in FY24.

FY23 Result Overview vs Consensus:

Total revenue A$362.4m vs A$354.4m (~2.3% beat)

EBITDA A$193.7m in-line 

Gearing 19.9%, down from 24.9%

Liquidity A$2,266m vs A$1,857m FY22

Contracted volume 122.2MW, up 47% vs FY22. 

Investment Implications

FY23 earnings were broadly in-line although on weaker margins. EBITDA margin fell from 61% (1H23) to 47% (2H23). Billing utilisation was weaker for the period. 

New capacity demand remains strong with the AI boom being a significant tailwind. Total contracted volumes were up 47% to 122.2MW. The forward order book of 44.5MW is expected to begin generating revenue by the end of FY24 and will continue to ramp up till FY29. FY24 CAPEX guidance significantly above market expectations, uplift to capitalise on booming AI demand. NXT are presenting this as bring forward of capex to accelerate fit-out.  

FY23 Guidance: 

Total revenue guidance: A$400m - A$415m vs ~A$410m consensus

Underlying EBITDA guidance: A$190m - A$200m vs ~A$210m consensus

CAPEX guidance in the range of A$850m - A$900m vs ~A$475m consensus

Investment Implications

Last weeks contracted utilisation report appears to be a case of getting the good news out first. In our view, the expectation for strong contract volumes as well as the uplift in CAPEX should partially offset a weaker earnings outlook. 

The long-term structural story of increasing data requirements remains attractive, however NXT’s early success was largely from early mover advantage and large international expansions may not be as successful and increases short-term risk. 

We retain our Hold recommendation.

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Stock Overview

Share Price

Company Overview

NXT is an Australian technology firm offering data center solutions, connectivity services, and infrastructure management software.

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