NEXTDC upgraded on diaspora to the cloud: Ord Minnett

Ord Minnett has upgraded NextDC Ltd (ASX: NXT) to a Buy recommendation from Accumulate citing the positive earnings surprise and the news that the new data centres being built in Sydney and Melbourne on schedule and within budget.

The broker claims NextDC is well positioned to benefit from the migration of Australian IT work to the cloud and centralised data centres.

At the half year, management guided to a FY22 data services revenue upgrade to $290m-$295m, from $285m-$295m.

First half highlights

• Data centre services revenue increased 19% to $144.5m

• HY22 underlying EBITDA increased 29% to $85.0m

• Contracted utilisation increased 14% to 81mw,

• Customer numbers grew 10%, to 1569

• Capital expenditure FY22 guidance upgraded to $530-580m, from $480-$540m

Capacity expansion planned

NextDC CEO Craig Scroggie said capital expenditures are on the rise due to planned expansions in Sydney and Melbourne, and additional capacity expansions that would boost total planned power to over 400mw, from 98mw currently.

These include new data centre projects planned in Adelaide and Darwin, and a possible expansion into data centres in Asia.

The company pointed out it had a war chest of around $2bn - including $725m in cash and equivalents, and $1.3bn in undrawn debt facilities - to underpin the expansion.

“NextDC is in an outstanding position to take advantage of current and future customer opportunities and to press its advantage into new regions and edge locations,” Scroggie said.

The domestic expansion included the third Sydney data centre project (12mw initial capacity), with expected completion by 2H22, and a third Melbourne centre (13.5mw initial capacity) with construction scheduled to finish by 1H23.

NextDC share price over six months.