Infratil's Manawa Energy reported a 6 per cent increase in operating earnings for the March year.
Infrastructure investor Infratil outlined its ambitious plans for its Aussie data centre business, CDC, this week, leading the market to question how it will be funded.
On the day, Infratil shares fell by 55c or 4.89 per cent to $10.70.
It has since recovered some ground, but not fully despite reporting a 50.6 per cent increase in net profit to $845.5m for the March year.
Infratil, commenting on its 48 per cent-owned CDC, said the company was prioritising the rapid acceleration of its development activities with eight data centres under construction across Sydney, Canberra, Melbourne and Auckland.
Demand across all customer segments remained strong, and CDC was well-positioned to secure new deals.
It said discussions were progressing towards significant capacity commitments in 2025, which could further accelerate capex and funding needs.
The guidance for CDC’s ebitdaf for 2025 was A$320-A$330m ($346m-$357m), up 20 per cent at the midpoint from 2024.
The market found the guidance from Infratil’s telco - One NZ - of flat profits next year a bit disappointing and the guidance for CDC was on the light side, relative to some of the more bullish analyst forecasts.
“There are some concerns also re the funding of the sizeable CDC growth pipeline – Infratil say they have that in hand but there some question-marks should it accelerate,” Salt Funds managing director Matt Goodson said.
Harbour Asset Management portfolio manager Shane Solly said the potential capital requirement for expansion in the data centre space was a good problem to have.
He said CDC was a high-quality investment with reasonable returns.
On the conference call, the company did not suggest there was a need to raise equity.
Solly Infratil had previously talked about CDC growing at 20-30 per cent, but this update was closer to 20 per cent, which may have disappointed some.
“But data centres are large assets to deliver so this may just reflect timing given IFT talked to potential for $2.5b of CDC capex, which is a large step up relative to previous guidance,” he said.
“Some investors may have baulked at the size of this increase in capital expenditure and taken a view that the returns on data centres development may not be as high as they were.”
Harbour’s research suggested returns from data centre developments remained attractive relative to capital return hurdles.
“While IFT may need to provide some additional equity capital to support CDC’s development programme, recent market evidence suggests equity investors may see this as an opportunity.”
Data expansion
If Australian data centre operator NextDC is anything to go by, there appears to be a strong investor appetite.
In April, NextDC raised A$1.3 billion to fund its expansion plans.
The issue was set at A$15.40 per share, a slight discount to its previously traded price of A$16.71.
Investors easily absorbed the extra stock, and NextDC now trades around A$17.54.
“If they [Infratil] were to raise new equity, it’s something that is likely to be supported quite well because the returns are strong,” Solly said.
“A capital raise may be a good opportunity - if it occurs - given the returns are still pretty helpful.”
Weak delivery
Brokers Forsyth Barr, in its report on Infratil’s result, said weaker trading at One NZ should have been expected, following on from Spark’s downgrade early this month.
Forsyth Barr said CDC was gearing up for “breathtaking growth”.
“Over the next three years, CDC could triple in capacity, with ebitda following close behind,” it said.
“CDC has tripled in capacity twice already. But scale matters. We estimate CDC will need to spend A$7 billion in capex, [to] deliver this growth.
“If CDC manages to execute on this opportunity then everything else is a sideshow; even continued poor free cash flow generation from One NZ.
“Supportive debt and equity markets as well as a flawless track record from management points to a likely success,” it said.
‘We have increased our earnings and valuation (and debt levels) for CDC materially, more than offsetting reduced One NZ valuation.”
Last year, Infratil successfully completed its largest equity raise, securing $935m at $9.20 per share.
Since the raise, which was to support the acquisition of One NZ, Infratil’s shares have performed strongly.
Early in the week, Manawa Energy, which is 51 per cent owned by Infratil, reported a 6 per cent lift in its ebitdaf to $145m for the year, driven by solid energy margins and operational efficiencies.
Comvita’s current response to an unsolicited takeover approach couldn’t be more in contrast to how it dealt with a previous tilt at the company more than a decade ago.
The circumstances are somewhat different, but this time around Comvita is quite happy to open its books to the suitor, understood to be private equity firm CVC Capital Partners.
The NZX-listed honey producer this week said it had given the bidder confidential access to the company for due diligence.
This comes three months after the company disclosed that it had received a “highly conditional unsolicited, indicative, non-binding proposal” from a credible offshore party.
The bidder’s due diligence coincides with fresh market guidance from Comvita as it trims back revenue expectations.
The company now expects revenue in 2024 of between $211 million and $218m, compared to previous guidance of $225m to $235m.
It also slashed ebitda guidance to between $23m and $28m, compared to its February forecast of $30m and $35m.
Comvita, whose shares have halved in value over the past 12 months, said the downgrades were due to prolonged weakness of consumer demand in the China market.
The stock recently traded at $1.85.
The board told shareholders this week there was no certainty that any transaction would eventuate from the bid process and therefore “no action is required” at this time.
Comvita’s board is chaired by former CEO Brett Hewlett and its independent directors are Bridget Coates, Julia Hoare, Bob Major and Michael Sang.
Rewind to 2011 and the situation was very different.
The company had received what was quickly described as a “hostile” bid from Singapore-based Cerebos Pacific, a food and health supplement giant.
Comvita at the time was positively humming, forecasting big lifts in profit after growing sales threefold on the back of a number of acquisitions to improve product range and distribution.
Comvita’s then chairman, Neil Craig, led the charge, describing the Cerebos bid as “nonsense” and not acceptable by a mile.
Independent directors lashed out, describing the takeover offer as unwelcome, opportunistic and considerably undervalued.
Cerebos had offered $2.50 a share, valuing Comvita at $73.75m, only to see the independent valuation from Grant Samuel come in at $3.40-$4 a share (equity value of $100.5m-$118m).
The takeover offer represented a premium of 19 per cent relative to the last trading day prior to the announcement of the Cerebos offer on October 13, 2011.
The stock would climb to $2.95 during the takeover battle.
Comvita’s independent directors at the time - Neil Craig, Maurice Prendergast, David Cartwright and Rob Tait – successfully defended the takeover and Cerebos headed back to Singapore.
Although Comvita is a larger company now – its market cap is $130m – current shareholders who were present back in 2011 will certainly be watching the current activity with interest, particularly any forthcoming offer price.
New Zealand Oil and Gas (NZ) plans to delist from the NZX on June 26, making the ASX its sole listing.
NZO currently has a primary listing and quotation of its ordinary shares on ASX and a foreign-exempt listing on the NZX.
“To enhance the trading dynamics of NZO’s securities by focusing activity on a single market with a larger capital and investor base, actively trading in comparable companies,” NZO said.
“The board anticipates improved trading volumes, and a share price that more accurately represents the underlying value of NZO’s shares.”
In recent years, NZO has shifted the focus of its operations from New Zealand to Australia, with the result that the majority of NZO’s revenue is now attributable to assets outside New Zealand.
- Additional reporting Duncan Bridgeman.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
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