This report is an updated version of the report published on 5 September 2024 at 12:15 PM AEST.

NEXTDC Limited (ASX: NXT)

NextDC Limited is an Australian entity specializing in data center services and solutions. Founded in 2010, NextDC operates a network of state-of-the-art, high-security data centers across key locations in Australia. The company provides a range of services including colocation, cloud connectivity, and data center infrastructure management.

Recommendation Rationale – SELL at AUD 18.140

• Trading Around Resistance: NXT’s share price has surpassed the ‘Resistance 1’ level recommended on 3 September 2024; thus, share price can face resistance at the current levels.
• Overvalued Multiples: On a forward 12-month basis – key trading multiples (EV/Sales, EV/EBITDA, and Price/Cash Flow) are higher than the average of Technology sector.
• Increased Net Loss: During FY23, Loss After Tax worsened by 22.1% YoY from AUD 22.0 Mn in FY23 to AUD 44.1 Mn in FY24.
• Capital Intensity: Data center operations are capital-intensive. Significant investments in infrastructure are required to maintain and expand operations, which could strain finances or affect profitability. Moreover, data centers are prime targets for cyberattacks. A major security breach could have significant financial and reputational impacts.

NXT Daily Chart

Valuation Methodology: Price/Cash Flow Approach (FY Jun'25E) (Illustrative)

NXT is likely to trade at a slight premium as it reported 10% and 5% YoY increase in net revenue and underlying EBITDA in FY24, respectively. The following peers have been considered for conducting valuation: Codan Ltd (ASX: CDA), Data#3 Ltd (ASX: DTL), Envirosuite Ltd (ASX: EVS), and Dropsuite Ltd (ASX: DSE).

Given its current trading levels, market uncertainties, and risks associated, the share price can witness resistance at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the current market price of AUD 18.140, as of 5 September 2024 at 10:30 AM AEST.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical issues prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is neither an indicator nor a guarantee of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 5 September 2024. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: In general, it is a level to protect further losses in case of any unfavourable movement in the stock prices.