Waiting continues

1H23 RESULT

Need To Know

• Result in-line with consensus
• Weak contracted sales (+3.2MW up 4% on 1H22)
• FY23 EBITDA guidance unchanged ($190-$198m), but large capex increase ($620-$670m up ~61%)

Capacity sales during the half were again very low at just +1.2MW which is a concern given the opening of two major new data centres in the half (S3 and M3). Revenue was up 10% to $159.7m and underlying EBITDA increased 15% to $97.5m. 

Annualised revenue metrics improved on the pcp, however are still down from their peaks. Annualised revenue per square metre was $11,041, up 2.5%, and annualised revenue per MW was $4.14m, also up 2.5%. NXT called out that revenues from larger customer orders increase over time as they consume more power and use more cross connects and ancillary services. New metro facility developments are designed to take advantage of industry movements towards higher density requirements. We are sceptical the metrics will materially improve given the annualised revenue per square metre has only risen 2.6% since 1H20 ($10,765), which is lower than inflation, and the revenue per MW has decreased 6.5% since 1H20 ($4.43m). 

Customer numbers have increased 8.4% on 1H22 to 1,701. Since 2H19, this has grown at a CAGR of 12%. The number of interconnections has grown 9.0% to 17,301 on 1H22, highlighting the increasing use of hybrid cloud and connectivity both inside and outside the data centre and customers expand their ecosystems, driving higher margin and customer retention.

Gearing has risen from 24.9% to 33.9%, and the weighted average cost of debt has also risen to 4.7% from 2.5%, impacting interest payments. Cash and equivalents fell to $363.8m. We remain cautious on the balance sheet, although the current level is manageable.

Capex guidance significantly increased to a range of $620-670m (up from $380-420m) driven by securing new sites for S5 Sydney and M4 Melbourne, both resulting in higher spend than originally forecast. Further expansion works continue at M2 and M3. The higher capex build is concerning when operating cash flow only increased 3%.

Investment View

Whilst NXT’s result was in-line and EBITDA guidance was largely reaffirmed for FY23, the concern in the result is that NXT has opened two major new data centres in the last 6 months, yet it has still not announced any substantial new capacity sales to hyperscale customers (albeit hyperscale revenues are lumpy).

The market may begin to lose patience at some point, particularly with higher than previously expected capex and debt ramp up. The waiting continues and we retain our Hold recommendation.

Figure 1: Solid EBITDA growth, although weak new MW contracted in the 6months