Raising the stakes

CAPITAL RAISE + TRADING UPDATE

Need To Know

• Raising $618m to expand into Malaysia and New Zealand through 1 for 8 entitlement offer at $10.80 per share (7.5% discount to TERP)
• Guidance revision range narrowed for EBITDA (to $192-196m from $190-198m), large capex uplift reflecting acquired land in Malaysia (~A$53m)
• Accelerating fit out at S3 to position for future growth after achieving 46% of total planned capacity, expecting more contract wins

NXT has commenced its international expansion, targeting both New Zealand (Auckland AK1) and Malaysia (Kuala Lumpur KL1). In order to pay for it, NXT is tapping the equity market, with plans to raise $618m through a fully underwritten 1 for 8 entitlement offer at $10.80 per new share, a 7.5% discount to the TERP of $11.67. All eligible directors have committed to individually take up all of their respective entitlements. The proceeds of the money raised will be invested as follows:

• ~$250m into the development of KL1;
• ~$140m in the development of AK1; 
• ~$150m on accelerating the fit out of S3; with the remainder being for corporate and transaction costs

NXT has already purchased and settled on new commercial property sites. Construction is set to commence in FY24 with sites targeting practical completion in 1H26. Both sites will be 100% owned by NXT. NXT is also drawing ~$100m in debt, with pro-forma leverage falling from 4.8x to 1.5x Net Debt/EBITDA, providing a much healthier balance sheet, alleviating some investor concerns.

Trading update. Since 31 December, NXT announced a contracted utilisation win of 35.9MW at the S3 site, with total planned capacity now at 46%. NXT is anticipating further wins, and so is accelerating its planned fit out. Guidance has been narrowed and revised, to now be:

• Revenue: $350-360m (previously upper end of $340-355m)
• EBITDA: $192-196m (previously $190-198m)
• Capex: $670-720m (previously $620m-670m) with the leap largely reflecting the recently acquired land for KL1 of $53m

Investment View

The international expansion strategy makes sense as NXT continues to grow and scale its operations. The equity raise largely alleviates debt concerns although cashflows will be long dated. 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.