Can the Nextdc Ltd share price keep climbing?

Nextdc Ltd (ASX:NXT) wants to build more data centres.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares in data centre business Nextdc Ltd (ASX: NXT) are in a trading halt today after the company announced it's looking to raise $150 million in new capital from investors to build another Sydney data centre to help meet strong demand for cloud services.

The company already operates multiple data centres across major Australian cities as demand rockets for capacity for businesses to store their data and IT networks in the cloud at offsite locations. Nextdc already has one data centre in Sydney and given the strength of demand for new capacity the company stated it's confident of seeing a strong return on its investment in building a second site.

Acquiring metropolitan sites for data centres and then physically constructing them requires significant upfront investment with the capital raising to fund it available to both retail and institutional shareholders at an 8.8% discount to Nextdc's last closing price of $4.10 per share.

Financials

The company delivered full year EBITDA of $27.7 million on revenue of $92.8 million for the full year ending June 30 2016. The EBITDA result was more than triple FY15's result, with the company guiding for EBITDA between $46 million to $50 million in FY17. If achieved this would almost double FY16's effort and this kind of gangbusters growth is what has fuelled a 75% share price rise over the last year alone.

Outlook

Data centre businesses enjoy strong operating leverage as once built operating costs remain relatively fixed, while additional revenues are earned at minimal extra cost via new client wins. This is a similar bottom-line bulging benefit enjoyed by other tech infrastructure assets like fibre-optic internet networks such as those operated by Superloop Ltd (ASX: SLC).

Nextdc's meteoric rise on the explosive growth in the demand for data sees it sport a market value of more than $1 billion today, although it does have powerful rivals in the likes of Telstra Corporation Ltd (ASX: TLS). While smaller data centre competitors like Over The Wire Holdings Ltd (ASX: OTW) are also rocketing in value, with its shares tripling in value from $1 to $3 in 2016 alone.

Thanks to their tailwinds investors would do well to pay close attention to the smartest operators in the data centre and tech infrastructure space. I expect to see the likes of Nextdc continue to grow their earnings and share prices at a decent rate over the years ahead.

Motley Fool contributor Tom Richardson has no position in any stocks mentioned. You can find Tom on Twitter @tommyr345 The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »