NextDC’s total recurring revenue, will trend higher over time as its network ecosystem matures

Business Strategy & Outlook

NextDC is well placed to benefit from industry megatrends, including the growing adoption of cloud computing, the Internet of Things, and artificial intelligence, leading to exponential growth in data creation. The NextDC will materially expand its capacity over the 10-year forecast period in order to meet growing demand for data center services.

The COVID-19 pandemic has accelerated the digital transformation of many businesses and expedited demand for co-location data centers. Large numbers of employees have transitioned to remote working arrangements leading to a greater reliance on digital technologies such as video conferencing and cloud-based platforms and reducing the need to store servers at a centralized location. Beyond the COVID-19 pandemic, remote working levels to remain elevated above prepandemic levels resulting in continued demand for digital technologies and potentially less need for physical office space. This shift has increased demand for data centers and hybrid and multi cloud data storage solutions, which are supported by co-location data centers like NextDC. Hybrid solutions that combine traditional infrastructure with cloud storage can improve business outcomes through reduced latency and costs, increased security and resilience, and the flexibility to connect to multiple clouds based on business needs. These solutions provide greater flexibility and allow businesses to scale their data storage capacity based on workflow. The interconnection services to become increasingly important for NextDC as more businesses transition to hybrid cloud storage models. As at fiscal 2021, interconnection revenue contributed 8% of NextDC’s total recurring revenue, and this will trend higher over time as its network ecosystem matures.

Financial Strengths

NextDC is in sound financial health. The company raised AUD 862 million in fiscal 2020 via an institutional placement and share purchase plan. Proceeds from the equity raising will be used to fund the development of a third Sydney data center and further capacity expansion at its existing and new sites. The gearing, measured as net debt/EBITDA, to deteriorate to above 3.6 times in fiscal 2023 as NextDC continues to invest heavily in portfolio expansion, before recovering from fiscal 2024 as capacity utilization improves. The NextDC will invest about AUD 4.0 billion during the 10 years to fiscal 2031 to grow total power capacity at a CAGR of 16%. The NextDC will only consider paying dividends when it has accrued sufficient franking credits, otherwise the capital would be better spent on investments or repaying debt.

Bulls Say

NextDC is well placed to benefit from industry megatrends including the growing adoption of cloud computing, the Internet of Things and artificial intelligence leading, to exponential growth in data creation.

The shift to cloud-based services increases the need for enterprises to connect to numerous cloud providers and the connection is fastest, safest and most efficient in a co-located data center.

The COVID-19 pandemic has accelerated the digital transformation of many businesses and led to increased demand for cloud-based services that require data centers.

Company Description

NextDC is an Australia data center developer and operator with a focus on co-location and interconnection among enterprise and government customers, global cloud and information and communications technology, or ICT, providers, and telecommunication networks. NextDC provides physical space, cooling, power, and security services and offers optional technical and project management support. The company’s tenants house their servers within the data center and can connect to each other via physical and virtual connections.

(Source: Morningstar)

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