1H22 financial highlights  

- Data centre services revenue increased $22.9 million (19%) to $144.5 million (1H21: $121.6 million)〉  

- Underlying EBITDA increased $19.3 million (29%) to $85.0 million (1H21: $65.7 million)  

- Operating cash flow increased $5.9 million (9%) to $69.5 million  

- Liquidity (cash and undrawn debt facilities) of $2.1 billion at 31 December 2021〉

FY22 upgraded guidance 

- Data centre services revenue in the range of $290 million to $295 million (upgraded from $285 million to $295〉 million)  

- Underlying EBITDA8〉 in the range of $163 million to $167 million (upgraded from $160 million to $165 million)  

- Capital expenditure in the range of $530 million to $580 million (upgraded from $480 million to $540 million)〉

Are we finally starting to see NextDC demonstrate operating leverage after years of heavy capital investment? 

Data centres are still misunderstood in my opinion and herein lies the opportunity. They aren’t property or infrastructure businesses; they are network opportunities. Attracting the likes of Amazon, Microsoft and co will in turn attract the smaller end of town to their data centres. It provides opportunities for the smaller guys to connect and utilise this same network, and brush shoulders with the big 6 tech -- amongst others. The larger and more interconnected the network becomes, we start to see a ‘network effect’ take place. NextDC wont make its big bucks out of the big 6, but it becomes far more attractive and appealing to other customers by merely having their presence within its network. 

NextDC, or more broadly its network, should continue to tick along nicely at 10-15% growth each year. This might not mean too much now, in fact to many they appear bloody expensive - but there is a good case to be made that we are slowly witnessing the creation of a giant that, in 5-10 years time, will have incredibly high margins, attractive pricing power, low churn and a sizeable moat (the NextDC network). 

My strategy remains as it did 6-12 months ago -- continue to take nibbles at NextDC as they continue to progress as a business. My hesitancy exists (if that’s what you want to call it) due to the fact the business still remains at a bit of a crossroads -- it is unpopular in the current macro environment given its multiples; they are moving into wholesale data centres to get even larger (risk and lower margins); and lastly, they are expanding overseas (more risk, and the chance that management throw money down the drain to accomplish expansion). 

That said, I have no complaints with H1 FY22 - quite the opposite. This was a great reporting period for NextDC and the thesis remains well and truly in tact.

Disc - held in Super account