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NextDC forecasts stable earnings

NextDC (ASX:NXT), a cloud computing-driven data center group, appears to anticipate a potentially unvaried earnings trajectory for the 2023-24 fiscal year, as indicated by the guidance accompanying its strong performance in 2022-23, announced on Monday.

The company, which earlier this year unveiled plans to bolster investments in new and existing data centers across Malaysia, New Zealand, and Sydney, reported a robust 25% surge in revenue to $362.4 million AUD, slightly surpassing the upper limit of the $360 million AUD revenue guidance.

Underlying EBITDA increased by 15% to $193.7 million, aligning with the guidance range of $190 million to $196 million. EBIT experienced a marginal 2% decline to $44.8 million, while the company’s loss improved to $25.6 million from $34.7 million in 2021-22.

Shares exhibited a decrease of over 3% during early afternoon trading on Monday.

The ongoing expansion endeavors will likely occupy a substantial portion of the company’s focus this financial year, as revenue growth moderates and margins face pressure until the first half of the upcoming year. However, revenue growth is anticipated to accelerate into the 2025 fiscal year and beyond.

Projected underlying EBITDA growth is expected to exhibit a gradual trajectory, hovering around $190 million to $200 million, marginally surpassing 2023’s $193 million.

Heightened costs are anticipated this financial year, a factor that remains a concern for investors. Given its status as a “growth” company, NextDC does not offer dividends.

For the 2023-24 period, NextDC envisions margin pressure for the December half, followed by improvement in the June half, attributed to the moderation of “high power pass-through revenues in the first half.”

Total revenue is projected to rise by 10% to 15%, reaching approximately $400 million to $415 million, with net revenue growth hovering around $295 million, a growth of about 9.5% from 2022-23’s $279 million.

NextDC aims for its forward order book to commence converting into revenues by the conclusion of 2023-24, with further acceleration projected from FY25 to FY29.

The company anticipates a “step change” in its cost base ahead of a significant increase in installed capacity (megawatts built) to accommodate noteworthy customer order wins in recent months.

Australian facility costs are expected to rise in the range of $12 million to $16 million, driven by augmented staffing levels and investments in land bank properties for future expansion.

Corporate costs are anticipated to increase by $5 million to $7 million, primarily directed toward Sales, Capital Works, and Technology. Operating leverage is expected to accelerate congruent with the conversion of the forward order book to revenue from FY25.

NextDC forecasts a notable rise in capital expenditure of around 30%, ranging from $850 million to $900 million, compared to 2022-23’s $687 million. This increased spending will be channeled into expansion projects in Sydney, the WA Pilbara, Malaysia (Kuala Lumpur), Auckland (New Zealand), Melbourne, and ongoing expansions in Adelaide and Darwin.

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