The NEXTDC (ASX:NXT) share price smashed the market in 2020

The NEXTDC Ltd (ASX: NXT) share price was in sensational form in 2020 and was one of the best performers on the S&P/ASX 200 Index (ASX: XJO).

The data centre services company’s shares recorded a gain of 86% over the 12 months.

This compares to a 1.4% decline by the benchmark index.

Why did the NEXTDC share price smash the market in 2020?

There were a few catalysts for NEXTDC’s strong share price gain in 2020. Chief among them was the COVID-19 pandemic accelerating the structural shift to the cloud.

With more and more businesses embracing cloud-based solutions, demand for capacity in data centres increased materially.

So much so, NEXTDC was forced to bring forward development plans in order to keep up with demand.

This strong demand underpinned a 33% or 17.4MW increase in contracted utilisation to 70MW in FY 2020.

And although billing hasn’t commenced for all of this utilisation, it didn’t stop NEXTDC from delivering impressive financial results for the 12 months.

NEXTDC reported a 14% increase in revenue to $205.2 million and a 23% lift 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.

What about FY 2021?

The good news is that demand remains strong and another stellar result is expected in FY 2021.

NEXTDC is expecting data centre services revenue of $242 million to $250 million, which will be up 21% to 25% on FY 2020. Management notes that this will be driven by strong growth in recurring data centre services revenue, supported by long-term customer contracts. Furthermore, space is now available at the S2 data centre to drive further enterprise and network opportunities.

Management is also forecasting its earnings to grow at a similar rate. It provided guidance for underlying EBITDA of $125 million to $130 million in FY 2021. This will be up 20% to 24% on FY 2020’s EBITDA.

It notes that its second generation facility performance is driving scale and earnings growth and operational excellence continues to deliver efficiencies in energy management and purchasing.

This could yet be boosted by a potential international expansion. NEXTDC recently opened offices in Singapore and Tokyo with a view for expanding into these markets in the future.

Can the NEXTDC share price go higher?

Analysts at Goldman Sachs believe NEXTDC’s shares can still go higher from here.

They currently have a buy rating and $13.20 price target on its shares. This compares to the current NEXTDC share price of $12.20.

In addition to this, the broker has 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.”

More reading

• Here’s how the S&P/ASX All Technology Index fared in 2020
• Why the NEXTDC (ASX:NXT) share price is up 85% in 2020
• 2 ASX tech shares to buy and hold until 2030
• 5 fantastic ASX shares to buy in 2021
• 2 outstanding ASX shares to buy and hold for a decade

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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