Stock in Focus: Next DC (NXT.ASX)
Shares of data centre operator Next DC initially opened in the red after delivering its 2023 half year result which saw revenue growth slow, decelerating to just +10% whilst delivering a net loss of $2.8m versus a net profit of$10.2m. The stock ended the day in the green up +2.4% as the market weighed more positive aspects of the result, including the company’s 2023 full year operating earning guidance of $340m to $355m, with underlying operating earnings (EBITDA) in the range of $190m to $198m.
We believe Next DC is still a quality company with strong medium and long-term growth potential stemming from the explosion of data usage, driven by digital platforms and set to exponentially accelerate as a result of advances in cloud computing, blockchain, the Internet of things, mobile 5G, augmented reality and artificial intelligence. The explosion of data is a powerful investment theme that we are firm believers in. All this data created needs to be stored somewhere and data centres are crucial pieces of infrastructure, enabling the secure and reliable storage of data. With adequate balance sheet space to fund projects to expand their data centre capacity – NXT have $1.9 billion in cash and debt facilities available, NXT can play the explosion of data investment theme over the medium term, and we remain BUY rated.
New Zealand Market Movers
The New Zealand market (NZX50 Index, +0.9%) took an upbeat lead from global markets as earnings season wraps up.
Restaurant Brands rose +4.3%, despite delivering weaker profits as cost inflation offset revenue growth. Neutral-rated.
Data revealed by Corelogic says house pricing in New Zealand, have fallen another -1% for the month of February, with house prices down -9% over the last 12-months, Wellington hardest hit with a monthly decline of -2.6% and 12-month decline of 19.7%. The largest fall since October, after most falls in December and January.
Mortgage holders are also starting to feel the pinch as interest rates jump, and cost of living continues to rise, 18,400 people now behind on their mortgage, the highest since April 2020. This data is worrying as 34% of all home loans come up for repricing in the next 180 days according to RBNZ.
Australia Market Movers
The Australian market (ASX200 Index +0.5%) was up as is recovered from a rough start to the week, as a lift in iron ore prices saw major minors reverse most of Monday’s losses.
Australia’s largest homeware and electronic retail Harvey Norman shares slumped -7.5% after reporting a -15% fall in net profit after tax, as softening sales and weaker margins impact profitability. We are neutral rated and prefer to avoid the retailer
US Market Movers
US retailer Target reported earnings, outpacing analyst’s expectations — revenue grew 1.3 per cent to $31.4bn from a year ago. Full-year revenue increased 2.9 per cent to $109.1bn, slightly ahead of analyst expectations. Management warned that they expect continued softening in consumer discretionary categories, and noted that they continue to see widespread impacts of “sticky” inflation. This should be a familar siren-call to regular readers of these emails: whilst essentials are holding up (toothpaste, toiletries, etc) discretionary spend is notably weaker. Prefer TJ Maxx (TJX) as exposure to consumer spend.
Inflation remains sticky over in Europe, too. Inflation in France was 7.2% in February, up from 7 per cent the previous month. In Spain, consumer prices rose 6.2 per cent in the year to February, higher than 5.9 per cent in January and well above the fall to 5.5 per cent economists had forecast. We continue to advise our clients to hold some cash on hand — continued Eurozone inflation (as with NZ, Aus and US) implies Fed rate hikes for longer and paves the way for a 5.5-5.75% terminal rate.
What Markets will be Watching this Week
Monday
Earnings from Lynas, Invocare, TPG telecom, Woodside Energy and Downer
Tuesday
Earnings From Restuarant Brands Heartland Group
Wednesday
Australian CPI data
Australian GDP
Meridian Energy Result
Thursday
US Manufacturing PMI (Producer Inflation) data
Eurozone Inflation data
Eurozone Unemployment data
Friday
Pushpay shares will vote on the proposed takeover from BGH Capital/Sixth Street.
Japan CPI (Inflation) Data
