Stock in Focus: Next DC (NXT.ASX)
Data centre operator NEXT DC shares jumped +8% yesterday after revealing a large wave of customer wins — its contracted utilisation has increased by +43% to 120MW since 31 December.
The company’s new S3 data centre has been the biggest beneficiary of the new customer contracts, having now reached 46% of its total planned capacity.
NextDC noted that it expects to progressively recognise revenue from most of the new customer contract wins from late 2024 through to 2029. This will follow on the completion and commissioning of additional data halls over the coming years.
We still believe Next DC is a quality company with strong medium and long-term growth. The share recovery is a testament to strong fundamentals and continued growth, and the stock is fairly valued in our view and suited towards long-term investors at the moment. Remain BUY rated.
New Zealand
The New Zealand market (NZX50, +0.4%) was up as markets braced for much anticipated inflation data from the US. Infratil shares rose +2.1%, being the local data centre operator benefitting from Next DC’s update, while most big names were in the green. We note that short interest in A2 Milk is on the rise — aprox. 4.55% of the float sits short now. Neutral rated.
Australia
The Australian market (ASX200, +0.5%) reaching a 5-week high recovering from the bank rout which started last month. At this point markets seem to be asking “what bank rout?”
Markets were mixed with tech and materials leading gains, which were offset by losses from Utilities and Energy. Major miners were up to offset losses across lithium stocks as the price of Chinese Lithium carbonated plunged -57% year to date down to US$28,760 per tonne. We’re starting to see opportunity in the miners now — Lynas looks interesting at the $6.00 range — regardless of your feelings about electric cars, lithium remains crucial in the production of them.
US
Little news but we note Softbank is selling down its stake in Alibaba – roughly $7B worth. It’s worth remembering that Alibaba was an early investment of Softbank’s that they essentially built their entire reputation on. We’re not buying the media hysteria on this — Softbank’s stake has been dwindling for years (see below) and even before that their stake was used as margin for loans or sold in forward contracts. In other words, in many ways, Softbank had already “left the building”. In many ways this is the end of an era, though — back in 2021 Softbank CEO Masayoshi-son was presenting slideshows with golden eggs — times have changed and now those once-ascendant venture capital investments (WeWork anyone?) are worth roughly zero. Hard to see anything but a bleak outlook for Softbank at this stage — it’s essentially a portfolio of hard-to-unwind assets. Prosus, the South African company which owns a major stake in fellow Chinese company Tencent has similarly unwound +$8B of its ownership in the tech giant. It’s a tough time to be a holding company unless your name is Bernard Arnault.
The only holding company we love – Christian Dior
European oriented investors might be interested in this idea. We are big fans of LVMH, the luxury company (owner of Moet, Louis Vuitton, Dior, Tiffany’s, etc). It’s propelled Bernard Arnault to top Musk as the world’s richest man. But Arnault owns his holding in LVMH via a listed holding company – Christian Dior SE (ticker code CDI). The holding company owns ~49% of LVMH and holds nothing else. It trades at 25x earnings whereas LVMH trades at 29x earnings — in other words, buying CDI is a way to buy LVMH at a discount. For investors willing to invest in Europe it’s a nice piece of arbitrage and a way to gain ownership of the world’s richest man’s company.