Data centre microcap, DC Two accelerates growth trajectory

Little known Perth-based microcap DC Two Limited (ASX: DC2) was up 7.14% after lunch today following news that the data centre business has secured a fixed term agreement to provide co-location services at its Victoria based regional data centre.

Management expects the agreement to generate around $1m in revenue over one year, after which time the customer may choose to cancel or switch to a month-to-month agreement at market rates.

Inflection point

Today’s announcement follows an inflection point for the company resulting from a shift to ‘behind the meter’ for its energy supply through a Power Purchase Agreement with LMS Energy.

It’s understood the deal will cut the company’s power bill by letting it deploy its transportable data centres next to an LMS bio-gas facility in Victoria, also allowing customers to choose a genuine green product offering.

763kw over 12 months

Under the terms of the agreement, the customer will purchase an estimated 763kw of power over a 12- month period with revenue expected to commence in third quarter 2022.

Expected to be online late July 2022, the Victoria site will have an initial capacity of 800kw via DC Two’s module, with total site capacity expected to increase to 1.2MW as the company seeks an agreement to access and sell space in LMS Energy’s module.

All going to plan, management foresees an operations and maintenance agreement with LMS Energy potentially resulting in DC Two being paid a fee to manage their data centre requirements at the site.

$3.4m in revenue

Today’s agreement follows the recent 2MW utilisation of the company’s Mid-West regional data centre, which is generating around $2.4m of recurring revenue annually.

Management expects both the Victoria and Mid-West regional data centre sites to generate around $3.4m in annual revenue under current agreements.

Commenting on recent developments, managing director, Blake Burton notes:

“We continue to see strong demand from customers for our low cost, eco-friendly regional data centre services… [and] will now aim to sell the remaining capacity in our 800kw module and secure an agreement to sell space in LMS Energy’s module, which could lead to further recurring revenue from the Victoria site.”

Financials

The company’s share price has fallen from $0.16 to $0.04 since the start of the year.

Consensus does not over this stock.

Based on Morningstar’s fair value of $0.17 the stock appears to be undervalued.

The company has a market cap of $2.3m and incurred a net loss after tax for the half-year ended 31 December 2021 of around -$1.9m.

As at 31 December 2021, the company recorded a net asset position of around $3.7m.

Net operating cash outflows for the period were $386,830 and ended the half year with a cash balance of around $1.3m.

After the reporting date the company received a short-term loan of $361,000 from directors at an interest rate of 5%, which is repayable in 12 months.

To fund exiting and future growth initiatives, and repay loans, the company recently raised $1,751,000 via convertible notes.

Interestingly, two senior executives recently agreed to voluntarily cancel 5m performance rights to improve future dilutionary impacts for all shareholders.

DC Two's share price.