Can the Nextdc Ltd share price keep climbing?

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.


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.


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.

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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.

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