Stock Spotlight: NEXTDC Limited (ASX:NXT)
This week's Stock Spotlight is ASX-listed NEXTDC Limited.
About NEXTDC Limited
NEXTDC Limited (NXT) is involved in the development and operation of independent data centres in Australia. They focus on providing scalable, on- demand services to support outsourced data centre infrastructure and cloud connectivity for enterprises of all sizes.
Source: Market Index
Key Stats
Key Stats
Source: ASX, Yahoo Finance, Bloomberg, Market Index. Data as of 02/05/24.
Price Performance
Growth Potential
- Australia is still in the early stages of cloud adoption. More efficient and cheaper broadband following the NBN’s implementation will drive demand from cloud providers for NXT’s assets.
- Extremely high-quality collection of sites.
- Focus on the premium end where pricing is more stable – Tier 4 gold centres.
- NXT has the balance sheet capacity to handle more debt and self-fund expansion through operating cash flow from the base buildings.
- Capital intensive nature of the sector provides a high barrier to entry.
- Government adoption of cloud and the subsequent need to outsource presents an opportunity.
- Strong customer ecosystem creates a ‘sticky’ customer base who are unlikely to churn.
- National footprint allows Company to scale better than competitors.
- Margin expansion as data centres ramp up and deliver strong operating leverage.
- Additional capacity announced.
- M&A activity given the global demand for data.
Key Risks
- No product diversification (NXT only operates data centres).
- Significant new supply of data centres by NXT and competitors.
- Delays in data centre build or ramp up, impacting earnings growth profile.
- Competitive pressures (price discounting by NXT or competitors).
- Higher power densities as a result of increasing average rack power utilization in Australia.
- Insufficient customer demand to achieve a satisfactory return on investments.
- Failure to obtain sufficient capital on favourable terms may hinder NXT’s ability to expand and pursue growth opportunities.
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Disclaimer: This article does not constitute financial advice nor a recommendation to invest in the securities listed. The information presented is intended to be of a factual nature only. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking financial, legal and taxation advice before investing.
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