NEXTDC Ltd. Background

Transcription

1 NEXTDC Ltd Background NEXTDC Ltd (NEXTDC) is seeking to raise $200m (with the ability to take oversubscriptions) in senior unsecured Notes III. The Notes are to be used to redeem Notes I and II and for general business purposes. Please refer appendix 1 for summary terms. NEXTDC designs, develops and operates data centres in Australia. NEXTDC is currently an ASX300 company and is the only independent data centre operator with locations in Sydney, Melbourne, Brisbane, Perth and Canberra. The company was founded in 2010 and listed on the ASX later that year. The company had a market capitalisation of approximately $1.21bn (). Figure 1: NEXTDC s locations and facilities Products and services: NEXTDC offers a range of data centre co-location services to enterprise, government, telecommunications and IT service companies. NEXTDC s data centres have been designed to address market demand for secure, energy-efficient, independent data centres in which organisations can host or co-locate their critical IT infrastructure. The contents of this document are copyright. Other than under the Copyright Act 1968 (Cth), no part of it may be reproduced, distributed or provided to a third party without FIIG s prior written permission other than to the recipient s accountants, tax advisors and lawyers for the purpose of the recipient obtaining advice prior to making any investment decision. FIIG asserts all of its intellectual property rights in relation to this document and reserves its rights to prosecute for breaches of those rights FIIG Securities Limited ABN AFS Licence No Page 1 of 9

2 1. Data-Centre-as-a-Service (DCaaS): Secure, high-density data centre space with redundant power supply and support services in enterprise-class facilities. Customers host their own infrastructure or storage, using the facility as an extension of their own property. 2. Connectivity-as-a-Service (CaaS): Both physical and virtual connection options. Cross Connects are physical fibre connections within a data centre facility, while AXONVX offers virtual connections to clouds, carriers and suppliers in any data centre on the AXONVX network. 3. Data Centre Infrastructure Management-as-a-Service (DCIMaaS): The ONEDC cloud platform enables centralised management of data centre assets across any data centre; delivering real-time intelligence to decision-makers. 4. Professional Services: Including technical advisory, migration planning, project management, deliveries, building, and operational infrastructure support. Capital structure Figure 2: Current and proposed capital structure $m Rate Next call Maturity Current* Proposed# Limit Secured NAB facility unknown unknown unknown Unsecured Notes III [6.50%] Jun-19 Jun Unsecured Notes I 9.00% Jun-17 Jun Unsecured Notes II 8.25% Jun-17 Jun Total debt Cash Net debt Total equity 1, ,210.0 Enterprise value 1, ,097.3 Source: FIIG Securities, Company reports. *31 December #Estimated NEXTDC is seeking to raise $200m (with the ability to take oversubscriptions) in senior unsecured Notes III. Please refer appendix 1 for summary terms. NEXTDC also has an undrawn $100m senior secured debt facility with NAB which ranks ahead of the senior unsecured Notes. Strengths Positive industry trends: IBISWorld forecasts the data storage services industry to continue growing over the NEXTDC five years, supported by increased data usage and demand for cloud storage solutions. IBISWorld believes businesses are becoming more comfortable outsourcing their data management requirements and are more aware of the potential savings in switching away from an in-house server. The company expects industry revenue to grow at an annualised 10.6% over the five years through , to reach $3.4bn. Australia s largest national network of neutral co location data centres: NEXTDC is the only independent data centre operator with a strategic footprint in all major growth markets in Australia. It has five operational data centres and three under planning and development. NEXTDC is able to offer customers a single nationwide data centre provider across five cities under one master agreement. High barriers to entry with large upfront cost and lack of available sites: The industry exhibits high barriers to entry, given the capital investment required, appropriate site selection, recruiting expert staff and difficulty in obtaining large contracts. Constructing a new data centre can cost anywhere from $50 to $200m FIIG Securities Limited ABN AFS Licence No Page 2 of 9

3 New business must raise a mix of equity and debt capital. Obtaining the right location is also vital. The appropriate location needs to have reliable power supply, security and the ability to be expanded in the future. Strong growth: NEXTDC has experienced 36% revenue growth and 11% EBITDA growth to 31 December 2016 compared to the prior corresponding period (PCP). The company forecasts this growth to continue with FY17 revenue guidance of $115m-122m (FY16: $92.8) and EBITDA guidance of $46m-50m (FY16: $27.7m). Figure 2: Recurring and project revenue Figure 3: EBITDA growth Growth is customer driven and illustrated by utilisation rates. Contracted utilisation has increased 32% on PCP to 30.0MW at 31 December 2016 with 87% of installed capacity contracted. Figure 4: Installed vs contracted utilisation Figure 5: Billing vs contracted utilisation Strong asset base and liquidity: At 31 December 2016, NEXTDC held cash of $276.5m, PP&E of $365.9m and net assets of $501.8m. It successfully raised $150m of equity in September The group recorded operating cash flow of $25.4m in 1H17, and also has access to a $100m undrawn line of credit from NAB FIIG Securities Limited ABN AFS Licence No Page 3 of 9

4 Well placed to capture continuing demand: The company s strong cash and funding position means it can continue the significant capital expenditure required to meet demand. NEXTDC forecasts additional capex on existing sites between $80m and $100m and expenditure on new data centre developments between $180m and $240m. The figure below illustrates the company s development pipeline. It is expected B2 and M2 practical completion will be towards the end of this financial year, while the S2 site is under contract with development approvals in progress and practical completion expected towards the end of Figure 6: Facilities capacity and utilisation Client quality and diversity: Customer numbers have grown from 130 at June 2013 to 699 at December NEXTDC has a good quality mix and concentration of customers from large multinationals, government agencies through to a tail of smaller enterprise. Figure 7 and 8 illustrate diversity by customer type and revenue by geography. Figure 7: Customer by industry Figure 8: Revenue by facility Customer contracts are typically long-term, stable and sticky. As at December 2016, 90% of revenue was contracted for terms greater than four years. Qualified management team and board: NEXTDC has a proven and qualified management team and board, with extensive industry experience. To date they have done a solid job growing the business, satisfying or exceeding forecast guidance expectations. Weaknesses Reduced customer demand/increased competition: While currently experiencing strong demand this may not continue or customers may not renew their contracts. Further, the rapidly increasing requirement for secure data storage has seen a number of international and local competitors opening facilities in Australia FIIG Securities Limited ABN AFS Licence No Page 4 of 9

5 Continued heavy investment in this supply may force pricing lower. Development of new and existing data centres is capital intensive and sometimes undertaken without pre-sales. There is a risk that there is not enough customer demand to achieve a sufficient return on investment. In mitigation, NEXTDC aims to become the largest independent, carrier neutral channel in the Asia-Pacific region which should provide a competitive advantage. Further, NEXTDC s data centres are built to allow a more scalable fit-out in accordance with demand. This results in a lower initial capital outlay, with capacity added as needed. The company also promotes mutual research and development projects and strategic alliances with its suppliers and has in house engineering and project management teams to assist its customers. Development risks: NEXTDC is involved in the development of data centres, including the proposed new sites for B2 and M2. Generally, development projects have a number of risks including suitable site selection, cost overruns or project delays and non-performance/breach of contract by a contractor or sub-contractor. In mitigation, the group has so far been successful in its site selection and development. Privacy and data security: NEXTDC is exposed to online and physical information security risks. To mitigate cyber risks, NEXTDC has implemented an information security management system based on ISO as well as undertakes ongoing penetration and vulnerability tests. NEXTDC is also exposed to physical security breaches as customers rely on the company s physical security measures to prevent unauthorised access to the space where their equipment resides. A physical security breach to a customer s space could result in irreversible reputational damage, impact on future opportunities and the ability to retain existing customers. Therefore, the company s facilities are protected by multi-layered security systems and protocols designed to limit access to areas within the data centres only to those with the appropriate authorisation. Infrastructure and technology failure: NEXTDC is significantly reliant on its infrastructure and technology which may be impacted by a variety of factors. The company could experience service interruptions or catastrophic failure or equipment malfunction. This may cause contractual and other losses. To address this risk, all of NEXTDC s data centres are designed and built with redundancy in place (including redundant paths for power and cooling) to enable components to go offline to be maintained without affecting customers IT equipment. Rapidly changing technology environment: The market for data centres is characterised by rapidly changing technology, frequent new product and changing laws (e.g. data and privacy). Such changes may also impact demand for data centre services and the value of specialised property, plant and equipment. To mitigate this risk, the company promotes mutual research and development projects and strategic alliances with its suppliers. Power Costs: NEXTDC had indicated that its power costs have increased substantially due to increases in electricity prices at the start of While NEXTDC is able to pass the increase in power costs to ~50% of its 2017 FIIG Securities Limited ABN AFS Licence No Page 5 of 9

6 customers who are on pass through contracts, it may take a margin hit if it is not able to increase pricing to offset the power cost increase. A breach or termination of data centre leases could have a material adverse impact: As part of its capital recycling program, NEXTDC disposed of its freehold interest in its data centres and subsequently entered into long term leases for these properties. Any breach or termination of these leases could have a material adverse impact on the company. The group leases its M1, S1, P1 and C1 data centres under non-cancellable operating leases. The land and building of the Group s B1 data centre facility is currently under finance lease. In mitigation, the leases are on long terms with renewal rights. The group s leases of M1, S1 and P1 are on 15 year leases and each has consecutive option terms out for another 25 years. The B1 lease period is for an initial term of 20 years, which can be extended with options out to another 20 years. Funding and refinance risk: NEXTDC s business is capital intensive. Failure to obtain sufficient capital on favourable terms may hinder the ability to expand, impact its financial performance or may reduce competitiveness. Noteholders are also subject to refinance risk: At maturity of the Notes, should the company face financial issues or the market for finance closed or prohibitively expensive, it could impact the ability to repay. In mitigation, the group has demonstrated access to bank funding, bond markets and a supportive equity market. Financial summary Income Statement FY12 FY13 FY14 FY15 FY16 1H17 Revenues Selling, General & Admin Expense Operating Income Interest Expense Net Non-Operating Losses (Gains) Pretax Income Income Tax Expense Net Income Balance Sheet FY12 FY13 FY14 FY15 FY16 1H17 + Cash & Near Cash Items Accounts & Notes Receivable Other Current Assets Net Fixed Assets Other Long-Term Assets Total Assets Accounts Payable Short-Term Borrowings Other Short-Term Liabilities Long-Term Borrowings Other Long-Term Liabilities Total Liabilities Share Capital & APIC Retained Earnings & Other Equity Total Shareholders' Equity Total Liabilities & Equity FIIG Securities Limited ABN AFS Licence No Page 6 of 9

7 Cash Flow Statement FY12 FY13 FY14 FY15 FY16 1H17 Net Income Depreciation & Amortization Other Non-Cash Adjustments Changes in Non-Cash Capital Cash From Operating Activities Capital Expenditures Other Investing Activities Cash From Investing Activities Increase in Long-Term Borrowings Decrease in Long-term Borrowings Increase in Capital Stocks Other Financing Activities Cash from Financing Activities Net Changes in Cash Margin Analysis FY12 FY13 FY14 FY15 FY16 1H17 Operating Margin % -16.1% -46.2% -10.5% 11.2% 23.3% EBITDA Margin % 0.4% 85.6% 15.5% % -16.1% Profit Margin 53.6% -5.0% 174.2% 70.0% % 41.4% Credit Metrics FY12 FY13 FY14 FY15 FY16 1H17 EBITDA Total Debt/Total Capital 3.7% 3.6% 22.8% 23.7% 33.3% 25.0% Total Debt/EBITDA x - 8.4x 6.0x 4.2x Net Debt/EBITDA Net cash Net cash Net cash 1.7% Net cash Net cash EBIT/Interest Expense x -18.2x -1.0x 0.8x 1.7x EBITDA less CAPEX /Interest Exp x -98.1x -2.4x -5.1x -7.8x EBITDA/Total Interest Expense - 0.6x -9.3x 1.3x 2.4x 3.1x Source: Bloomberg, FIIG Securities Conclusion NEXTDC is the only independent data centre operator with a strategic footprint in all major growth markets in Australia. The group has experienced strong growth which the company expects to continue. This is supported by strong industry dynamics. IBISWorld forecasts industry revenue to grow at an annualised rate of 10.6% over the next five years. At 31 December 2016, NEXTDC held cash of $276.5m, PP&E of $365.9m and net assets of $501.8m. The group also has access to a $100m undrawn line of credit from NAB. The company s strong cash and funding position means it can continue the significant capital expenditure required to meet demand. The industry is exposed to a rapidly changing technology environment which may impact demand for data centre services and the value of specialised property, plant and equipment. NEXTDC is exposed to online and physical information security risks, a breach of which may have negative implications. The group is also exposed to development risks associated with the expansion of existing and the build of new data centres FIIG Securities Limited ABN AFS Licence No Page 7 of 9

8 Appendix 1: Summary of Note III terms Issuer NEXTDC Limited Offer size $200m (with the ability to take oversubscriptions) Minimum parcel size $50k Use of proceeds Redemption of Notes I and Notes II and general corporate purposes Instrument Senior unsecured notes Coupon [6.50%] semi-annual Maturity date [9 June 2021] at [101.50%] Issuer call [9 June 2019] and every six months thereafter at [101.50%] Covenants Finance debt to total tangible assets of not more that 0.5:1 Secured debt to total tangible assets 0.33:1 Source: FIIG Securities, Investment Memorandum 2017 FIIG Securities Limited ABN AFS Licence No Page 8 of 9

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