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Nextdc Ltd flags deal with Superloop Ltd on Indigo cable & “strong start” to FY19

One of the ASX’s most popular growth shares in data centre operator Nextdc Ltd (ASX: NXT) has lost around 17% of its value over the past six months despite reporting a couple of strong updates in terms of operations and financial performance.

For financial year 2018 the group reported underlying EBITDA of $62.6 million on revenue of $161.5 million, with the results being up an impressive 28% and 31% respectively.

In FY 2019 it is forecasting revenue to lift between $183 million to $185 million.

Nextdc is also investing heavily for growth by constructing new data centres in Melbourne and Sydney as demand continues to surge for data centre services from Australian businesses.

Today most data created by a business is stored online rather than on a physical hard drive and it’s this shift to the cloud that is creating the strong demand for Nextdc.

The increasing demand for data is also likely to be supported in the future by new technologies such as artificial intelligence and the internet of things where everyday devices are connected to the internet to use via remote control.

To meet this demand Nextdc is forecasting capital expenditure between $430 million to $470 million in FY 2019 which it is financing via a mixture of debt and equity raisings.

As at 30 June 2018 the group had $418 million in cash on hand. Subsequent to then it has raised another $300 million in debt via convertible notes, which means it has $718 million cash in hand to invest for the future.

In a market update today Nextdc’s management also noted it has made a “strong start” to FY 2019, with the group reaffirming that data demand over the start of the new financial year is still growing very strongly.

It also announced today that it has struck a deal with dark fibre and subsea cable provider Superloop Ltd (ASX: SLC) to access its Indigo cable that connects Western Australia and Singapore via Indonesia. In effect this means users of Nextdc’s data centre services will enjoy fast internet connections overseas as well via the Indigo cable.

Recently Vocus Group Ltd (ASX: VOC) completed its own Australia to Singapore submarine internet services cable along the same route and it has also seen strong demand from corporate Australia for capacity on the cable. However, the two will now be in direct competition when the Indigo cable is complete.

Today Nextdc shares are down 4.6% to $6.20, although the company still has a market value more than $2.2 billion compared to an FY 2018 net profit after tax of just $6.6 million. It looks one for investors’ watch lists.

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Motley Fool contributor Yulia Mosaleva has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Vocus Communications Limited. 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 Scott Phillips.

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