The NextDC Ltd (ASX: NXT) share price has come under pressure in 2022.
Since the start of the year, the data centre operator's shares are down 21%.
This has been driven by weakness in the tech sector and concerns over its exposure to rising energy prices.
Is the NextDC share price weakness a buying opportunity?
According to a note out of Morgans, its analysts believe the NextDC share price is trading at a very attractive level.
This morning its analysts have retained their add rating but trimmed their price target on its shares to $13.01.
Based on the current NextDC share price of $10.09, this implies potential upside of 29% for investors over the next 12 months.
What did the broker say?
Morgans has been looking into what impact rising energy prices would have on NextDC's operations. The good news is that it doesn't expect any material impacts. It explained:
NXT typically contracts energy rates annually. We estimate that ~80% of FY23 power costs get passed straight through to its wholesale customers. The remaining ~20% is enterprise and subject to annual price reviews which are typically the greater of CPI or 2.5%. Enterprise contracts also allow NXT to pass on material structural changes in energy prices (which it has done once in the last decade).
The broker also sees rising energy prices as an "opportunity" for NextDC. This is due to the company being independently certified as the only Australian data centre provider with a NABERS 5-star rating for energy efficiency. It was also certified with PUE of 1.4 in FY 2021, which is well below the Australian industry average of 1.7.
Morgans feels that this efficiency could be attractive to prospective customers. It commented:
This means NXT is >50% more energy efficient than peers and much more energy efficient than on-premise. Customers looking to save money due to rising energy prices may well fast-track their migration to NXT.
Overall, its analysts "see upside risk to FY23 consensus revenue and are comfortable with EBITDA."
