Result summary – sales momentum accelerating
Operating revenue was up 30% yoy or A$17m to A$73m and will increase more in 2H18. Revenue growth came from more customers, record installation revenue, higher rates (partially due to higher power costs) and more connectivity.
Cross connect (cc) growth was a record with 1,100 new ccs being sold in 1H18 (vs an average of ~800 over the last few years). This proves, in our view, that the value of NXT's ecosystem continues to improve exponentially. EBITDA was up 41% yoy to A$33.6m (ex AJD distributions) and well ahead of our forecast.
NXT reported record sales in 1H18 with contracted MWs increasing 9.2MW to 39.2MW. Sales in 1H18 were equivalent to NXT's total sales for the first 3 years of its existence so clearly the business (and share price) have come a long way since then.
Despite such impressive growth contracted utilisation is just 31% of 126MW of planned power so there is still plenty of upside from current levels. NXT's operating leverage was apparent in 1H18 with 57% of incremental new revenue dropping to the EBITDA line (despite a few months of new facility costs).
In 2H18 this won't be as apparent (we forecast a 3% fall through) because operating costs will step-up by ~A$10m due to 6 months of new facility costs and NXT's accelerated new growth projects. B2 opened in Sep 2017 and is ~2% utilised.
B2 contracted sales increased by 200kw for the three month period (about double the historical 6 month average of B1 sales). M2 opened in Nov 2017 and is ~1% utilised.
Contracted sales for the 2 month period increased by 300kw which is slower than the historic 6 monthly average of M1. However given we are comparing 2 and 6 month periods this is a solid result, in our view. As announced in Dec 2017, S2 contract utilisation is already 18% (5.4MW) even though S2 doesn't open for 6 months or so.
Forecast changes ~5% operational upgrades
We have upgraded our EBITDA forecast by 4% in FY18 and 6% in FY19. EPS in FY18 declines marginally on accounting treatment. NXT now expenses tax through the P&L to utilise its deferred tax assets. This is non-cash for the next few years until NXT uses up the ~A$9m in deferred tax assets on balance sheet.
Investment view – great performance, we move to a Hold, for now
Our valuation and price target increases (access by Morgans clients only). Given the strong share price run it is now within 10% of our price target and we move to Hold recommendation. Despite this we remain very positive on NXT's medium-term prospects.
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Disclaimer(s): Analyst owns shares.
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