One of the best performers on the S&P/ASX 200 Index (ASX: XJO) this year has been the NEXTDC Ltd (ASX: NXT) share price.
Since the start of the year, the data centre services company’s shares have rocketed a massive 85% higher.
Why is the NEXTDC share price rocketing higher this year?
Investors have been fighting to get hold of the company’s shares this year after the COVID-19 pandemic accelerated the structural shift to the cloud.
This shift to the cloud led to a jump in customer numbers and a surge in demand for capacity in NEXTDC’s data centres.
For example, during FY 2020, NEXTDC’s contracted utilisation grew 17.4MW or 33% to 70MW and its customer numbers increased by 180 or 15% to 1,364.
Unsurprisingly, this underpinned further strong revenue and profit growth. Over the 12 months, NEXTDC delivered a 14% increase in revenue to $205.2 million and a 23% jump in underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to $104.6 million. The latter was at the top end of its guidance range.
Pleasingly, management is expecting this positive form to continue in FY 2021. It provided underlying EBITDA guidance in the range of $125 million to $130 million. This implies growth of approximately 24.5% at the top end of its range.
What else is driving the NEXTDC share price higher?
Also getting investors excited is its recent announcement of a new senior debt facility of $1.85 billion.
This senior debt facility is being split across three tranches, each with a tenor of five years. This comprises $800 million for a term loan facility, $400 million for a capital expenditure facility, and $650 million for a multi-currency revolving credit facility.
After much speculation, the company revealed that the latter multi-currency revolving credit facility is to support its international expansion. NEXTDC has opened up offices in both Singapore and Tokyo and is working with key customers and talking to respective governments about a potential market entry.
Given the size of these markets, they could provide NEXTDC with a long runway for growth over the next decade.
In light of this, it is no surprise to learn that Goldman Sachs has a buy rating and $13.20 price target on its shares. It has even suggested that its shares could be worth $20.00 based on assumptions that are high, but “not unrealistic considering the current acceleration in demand that is evident across the business.”
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Returns as of 6th October 2020
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Motley Fool contributor James Mickleboro owns shares of NEXTDC Limited. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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