Next DC is an ASX100 technology business that designs, builds, and operates secure, reliable, high-performance, world-class digital infrastructure for business and government customers. The digital infrastructure is housed in a physical location, called a data centre, which uses servers, data storage devices and network equipment in a highly secure, purpose-built building.

The burgeoning digital economy, driven by online, real-time data storage and processing needs has created significant demand for data centres all over the developed world. The proliferation of Artificial Intelligence over the past 12 months has created a growing exponential structural demand for reliable data centre capacity to process vast amounts of data within complex forecasting models in real time.

Data centres are extremely complex facilities requiring resilient and reliable power 24/7/365, cooling solutions, physical and cybersecurity and interconnection requirements that ensure 100 percent uptime availability.

Next DC has been providing data centre solutions since 2010, and its nationwide data centre network of 16 data centres is a key competitive advantage.

The Group has in-house engineering and operational teams that deliver bespoke, customised and streamlined data centre solutions to customers and consistent pricing and service levels, all under one agreement. This expertise and technology is readily transferable to other parts of the world.

Expansion of core Insurance Building and Restoration Services Business

The strategic acquisition of an 87.5 percent stake in Keystone Group, a leading participant in the Australian Insurance Building & Restoration Services sector, is set to bolster Johns Lyng’s capacity for large-scale disaster response. The acquisition is expected to be immediately earnings accretive and is valued at $44.1 million in cash and $3.6 million in shares, plus $21.4 million in potential earn-out payments. Keystone Group is expected to contribute over $100 million to FY25 revenue and around $9 million in EBITDA. Consistent with JLG’s employee equity alignment approach to executive remuneration, Keystone’s management will retain a 12.5 percent equity stake in the newly acquired business. Completion of the acquisition is expected to occur in the first half of FY25.

The acquisition firmly stamps Johns Lyng Group as a leading provider of insurance building and restoration services, as well as hazardous material removal arising from catastrophe-related events in Australia and New Zealand.

Investing in the future

Beyond its Australian presence, Next DC has a major data centre under development in Kuala Lumpur, and another in the planning phase for Tokyo. This is in addition to three more data centres in the early planning stage in Australia. The Group also has multiple other sites under evaluation throughout the Asia-Pacific region, including in Singapore and Bangkok.

The $1 billion Kuala Lumpur project is underway and will serve as a beachhead for growth in Southeast Asian economies where existing key customers are looking to expand their services.

Shareholders are displaying enthusiastic support for the capital raising needed to fund these ambitious expansion plans. Next DC’s recent $1.3 billion entitlement offer had a 99 percent take-up by institutional investors and 82 percent of retail investors. The Group has cash of $1,236 million and $1,500 million of undrawn loan facilities at 30 June 2024 and so is well placed to fund its planned data centre development pipeline.

The Group is continually investing in technology and software capability to enable the business to scale up to more than double the size of the existing business. For example, to provide real-time customer reporting and digital access, Next DC is investing in advanced telemetry, sensor deployment, and remote surveillance to support enhanced customer compliance and reporting. This data is also likely to enhance energy and water efficiency and operational process improvements. Next DC is also investing in IT systems, facility management and other platforms as it transitions away from capex-heavy legacy systems to more flexible and scalable on-demand consumption models.

FY25 and beyond

Net revenue is forecast to reach $340 to $350 million in FY25, up from $308 million in FY24. Underlying FY25 EBITDA is estimated at $210 to $220 million, up from $204 million in FY24.

Customer-driven investment is the reason for Next DC’s FY25 high capital expenditure guidance being in the range of $900 million to $1,100 million. This compares with a $1,003 million capital expenditure in 2024.

Next DC’s 30 June 2024 balance sheet reveals that 46 percent of Group assets comprise land and buildings, 25 percent is plant and equipment, and 24 percent is cash. Gearing was 3.4 percent on 30 June 2024. These metrics imply a conservative balance sheet backed up by hard assets that provide essential, long-dated contractual services to large enterprises and government agencies.

The Group’s planned development pipeline is set to double operational capacity, leading to strong and reliable cash flow in the coming years. Demand for data centers is driven by the shift to cloud storage and AI, unaffected by economic fluctuations. As of June 30, 2024, Next DC reported 105% contracted utilization of its data centers, with contracts having deferred start dates. These contracts typically take 2 to 3 years to fully ramp up as customer infrastructure is completed, resulting in a significant boost in future earnings from existing facilities.

Data centres are set to become the factories of the future by transforming vast amounts of raw data into actionable insights that ensure businesses can confidently implement rapid, but high-quality decisions. Next DC is set to capitalise on this digital transformation by building and operating the infrastructure that enables enterprises and government agencies in Australia and the broader Asia-Pacific region to achieve unprecedented productivity in this new era.

Next DC is likely to remain in growth mode at least for the next 5 years and is suited to patient investors who prefer capital growth over regular income.