Stock of the Week #1; NextDC
NXT reported a 14 per cent rise in revenue, coming in at the high end of its guidance range. Growth was driven by strong demand for capacity at its data centres. Customer numbers also surged – up by 15 per cent in the period. Spending was big in the period, as the company moved to take advantage of the increasing demand for data centre capacity with capex rising 11 per cent.
CEO, Craig Scroggie says the business is positioned for an exceptional 2021, tipping a record year of both deliveries of its new data centres and sales.
I asked Mathan Somasundaram from Deep Data Analytics and Gaurav Sodhi from Intelligent Investor to give their download on NXT. Gaurav says he’s got a really good history with this business.
“We upgraded this around $6. We bought it not long after. Its gone terrifically well.”
Gaurav thinks the market still does not understand what NEXTDC really is.
“It’s a little bit like Westfield with a big bunch of real estate that attracts a handful of very large tenants. For NEXTDC, these are the hyper-scale customers like Google, Facebook, Amazon who rent huge capacity from the data centres. It doesn’t make much money from them but once they are there, then lots of other companies get into the data centres for the purpose of connecting with those big hyper-scale companies.
“So what you’re building here is a network of networks. I think that’s largely under-appreciated.
“That’s where the true value of this business lies and that’s why they’re fiercely trying to expand and they’re trying to extend these hyper-scale customers. It then attracts lots of high margins and smaller customers. It’s terrifically valuable. I still think it’s worth $15 plus, but it’s a hold for me.”
Mathan agrees with Gaurav and thinks it’s a great business.
“I would give the credit to a few analysts out there who, from the early days had a target price up there around $14-15 mark. It’s run hard in the last six months.
“NASDAQ is going to come off. So when that comes off this [NXT] will come off as well. There’s a pullback coming and that will be a good buying opportunity below $10 and you will then see it go to $15-$16.”
Stock of the Week #2; Pointsbet
Pointsbet announced a $303 million capital raise to continue its push into the emerging US sports gambling market. The proceeds from the raise will be used for marketing in target states, technology and platform development. Group CEO and Managing Director Sam Swanell, says it will position the company for the future. He spoke in particular of PointsBet’s future as an Official Sports Betting Partner of NBC Sports in the US.
I asked Mathan Somasundaram from Deep Data Analytics and Carl Capolingua from Think Markets whether they’d like to take a punt on PBH.
Carl likes the stock and has followed it for a while, back when it was $6.40 in early August.
“Its more than doubled since then. I certainly didn’t predict the magnitude of the deal with NBC. It is significant and It’s a potential a ‘game-changer’ or a ‘company maker’. It gives PBH access as they’ve never had before.
“I think I’d be happy for our clients to hang on to their shares at this stage. I’m sure some of them would have taken profits. I don’t think you should be all out of the stock right now, just simply because of the opportunity that it has going forward.
“If you’re not in it, that makes things more difficult. If you’re going to get into it, you need to find the right place to do so which isn’t at current levels. There’s going to be a bit of a pullback from here and it’s probably more like an $11 or $12 mark where I think you’d be able to pick it back up again at a reasonable price.
“I’d like to buy it but I just don’t want to buy it at these prices”
Mathan wasn’t surprised to see the share price do so well since the lockdown pull-back.
“The deal with NBC is interesting. When they pre-announced the capital raise on Friday, the stock basically doubled. It’s basically gone from a $900 billion market cap to a $1.8 billion.
“You’re buying a growth story… It’s a good business, great macro, everything’s worked for it. Will that continue in the next few years? I’d say it’s going to get harder from here. Once you become this big, you gotta hit a lot bigger goals to get there.
“I’d start taking profits gradually at current levels. I’d probably take half off the table and see how it goes. If it comes back a couple of bucks further. I’m getting out.”
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