Stock in Focus: Next DC (NXT.ASX)
Data Centre operator Next DC shares are in a trading halt as it announces it wants to raise $618m in capital from shareholders. The funds will be used to build two new data centres in Malaysia and New Zealand and accelerate fit-out at its S3 Sydney centre.
Commenting on the new developments that could offer the NextDC share price some tailwinds in the year ahead, CEO Craig Scroggie said, “Building upon the success we have achieved in Australia over the past decade, we aim to replicate our proven business model in these new markets.” Hinting at further growth plans, Scroggie added, “New Zealand and Malaysia are just the first greenfield geographic expansion opportunities outside of Australia.”
$618m fully underwritten 1 for 8 pro-rata accelerated non-renounceable entitlement offer new shares offered at $10.80 each represents a discount of just over 8% from the current NextDC share price.
Next DC also upgraded their revenue, earnings (EBITDA) and capital expenditure guidance for the 2023 financial year. Data centre services revenue in the range of $350m to $360m (previously the upper end of the $340m to $355m range).
We welcome the growth expansion and would encourage shareholders to participate in the capital raise. We maintain our BUY rating as a medium to long-term investment.
New Zealand
Megan Welch has been appointed the new CEO of Kathmandu (ex-Crocs GM APAC). We like the appointment – Crocs has been a good performer the last few years and gained good traction with Gen Z. We like KMD as a retail pick but still avoiding the retail space given the macro environment.
Noting employment ads for Seek have fallen -16% YoY – some slowdown in the space? Read-through => tech and finance have already instituted a hiring freeze.
Australia
Slow news day. Newmount looks on track to submit a binding takeover offer by 18 May. Likely to go through.
QBE has upgraded its outlook for the year, aiming for 10% growth. QBE is our favoured insurance pick.
REA saw a 3% decline in revenue and warned of a loss from core-contributions from associates in a further sign of a slowing real estate market,.
US
Consider Softbank. In the heady days of 2021 Mayoshi Son was considered a little crazy – his slideshows routinely showed actual golden geese laying eggs – but CIOs were going crazy for him too — the Saudi sovereign wealth fund give him tens of billions to invest in such gems as WeWork and a bevy of unprofitable startups. Credit where credit is due, though: Son invested in Yahoo! early, and Alibaba early, and TikTok owner ByteDance in 2018. The thing with Mayoshi Son is that some of his picks are quite good — it’s hard to argue that ByteDance isn’t the dominant form of media of the last ~5 years. The problem is that Mayoshi Son bet a lot, and he bet at the wrong time — Softbank reported a $39B loss today. Softbank’s stock is trading at a whopping ~44% to its NAV. A lot of this has to do with the steep discount that Chinese firms sell for — Softbank has sold ~$7.2B of its position in Alibaba, but there’s a good argument that Alibaba is undervalued because China is essentially uninvestable as of now.Softbank is looking at floating ARM later this year – ARM’s hardware is inside almost every single smartphone – the IPO is probably going to be worth $45-50B– and this is why we end up at the same juncture: Softbank made some good investments, but it made a lot more bad ones.
Sweden has some property problems
SBB owns real estate in Sweden. On Monday S&P, the rating agency, cut the Swedish landlord’s credit rating to junk territory: its concerns were tightening market liquidity and short-term debt coming up from refinancing. The bulk of Sweden’s property groups have fallen since the start of the year — SBB has fallen 60% and the others have fallen~20%. The big issue is bond debt: ~70% of Sweden’s big property groups debt is maturing within five years; ~$10B is due this year. Why are we talking about Sweden? For one, Sweden is seeing this situation develop with a lower cash rate than most — Sweden’s Riksbank’s rate is sitting at 3.5%. We’re wondering if this is the canary in the coal mine for the rest of the European property market and we wonder if it is applicable to New Zealand, where several REITs already trade at a good discount to NAV. Watching with interest.