##{"id":58983,"date":"2011-10-13T10:24:21","date_gmt":"2011-10-12T23:24:21","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/10\/13\/nextdc-a-buy-as-data-centre-goes-live\/"},"modified":"2011-10-13T10:24:21","modified_gmt":"2011-10-12T23:24:21","slug":"nextdc-a-buy-as-data-centre-goes-live","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/10\/13\/nextdc-a-buy-as-data-centre-goes-live\/","title":{"rendered":"NEXTDC A Buy As Data Centre Goes Live"},"content":{"rendered":"

\n\t– NEXTDC<\/span> goes live with first data storage facility
\n\t– Sales momentum is picking up
\n\t– Strong earnings growth expected from FY14<\/span>
\n\t– Moelis<\/span> rates stock as a Buy<\/strong><\/p>\n

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\n\tBy Chris Shaw<\/p>\n

\n\tJunior IT play NEXTDC<\/span> ((NXT<\/span>)) operates carrier and systems integrator neutral data centres<\/span> through Australia and New Zealand. The product offering is a range of energy efficient and secure data centres<\/span>, along with associated services provided to corporate, government and wholesale partners.<\/p>\n

\n\tYesterday NEXTDC<\/span> announced a Certificate of Classification relating to its B1<\/span> facility had been received, allowing the data facility in Brisbane to go live. The should see pre-committed customers start to move into the space in the next few weeks according to management.<\/p>\n

\n\tSales momentum for NEXTDC<\/span> has been picking up, as Moelis<\/span> notes an update late in July indicated a qualified pipeline of sales of more than $50 million. This compares to more than $20 million as per an update in March of this year. With a sales team being put in plac<\/span>,e Moelis<\/span> expects this momentum will have been sustained.<\/p>\n

\n\tIn terms of the market in which NEXTDC<\/span> operates, Moelis<\/span> expects a supply-demand imbalance for data centre space for a number of years. This reflects the rapid growth in data traffic and the increases in power and cooling requirements of modern server technology.<\/p>\n

\n\tThe major uncertainty in the view of Moelis<\/span> is the speed at which occupancy ramps up at NEXTDC's centres<\/span> in the major capitals. Expectations are the Melbourne, Canberra, Perth and Sydney centres<\/span> will be rolled out and essentially be fully occupied by the end of FY14<\/span>, at an average rate of around $3,600\/kW\/square metre.<\/p>\n

\n\tMoelis<\/span> sees scope for a careful approach to filling the data centres<\/span> to be adopted, causing a slower ramp-up in occupancy levels. Such an approach would also facilitate additional revenue from cross-connects, though this implies some upside as the current forecasts from Moelis<\/span> don't include any assumptions for cross-connects.<\/p>\n

\n\tIn terms of funding growth plans, Moelis<\/span> doesn't see any significant issues given a recent $50 million equity issue lifted cash balance to around $90 million. As well, a Capital Recycling Program could generate around $110 million from the sale and leaseback of facilities in Brisbane, Melbourne, Perth and Sydney over the next three years according to Moelis<\/span>.<\/p>\n

\n\tA full utilisation of NEXTDC's available power of 33.25MW and technical space of 17,800 square metres should generate $60 million in EBITDA (earnings before interest, tax, depreciation and amortisation). This could be achieved by 2015, the analysts sugest.<\/p>\n

\n\tIf so, this supports a discounted cash flow valuation of $2.60 on Moelis's estimates, though the turning of a net profit is not likely prior to FY13. Earnings growth should then be strong, as Moelis<\/span> is forecasting earnings per share (EPS) of minus 1c in FY12, 0.4c in FY13 and then 14.6c in FY14<\/span>. No dividends are expected through FY14<\/span>.<\/p>\n

\n\tA market capitalisation of a little less than $250 million means little coverage of NEXTDC<\/span>, the FNArena database showing only RBS Australia covers the stock. By way of comparison with the numbers of Moelis<\/span>, RBS is forecasting EPS of minus 5.8c in FY12 then 0.2c in FY13.<\/p>\n

\n\tGiven the lack of earnings medium-term, Moelis<\/span> expects news of new contracts and sales will be the key driver of the share price over the coming year. Moelis<\/span> continues to see value and so rates NEXTDC<\/span> as a Buy, which matches the rating of RBS. Price targets show some spread, as while Moelis<\/span> has a target of $2.00 the target of RBS is set at $2.44.<\/p>\n

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