Infratil's largest asset is worth twice its current book value, two analysts say.
One element of Infratil's transition to a high-tech infrastructure company gets a big tick from Forsyth Barr analysts Andrew Harvey-Green and Scott Anderson: its 48 per cent stake in hard-charging Canberra Data Centres (CDC).
CDC has become the fastest-growing segment of Infratil's business - and now the recent revaluation of its 48 per cent stake to $1.55 billion - a 70 per cent gain on last year's $889.2m (Infratil paid A$392m for the holding in 2016).
But Harvey-Green and Anderson say Infratil's "stand-out investment for the past three years" is still under-valued.
In FY2020, its share of CDC profit contributed $59.6m to Infratil's operating earnings, up from the prior year's $37.6m. Aggressive expansion plans are underway as the pandemic accelerates cloud-computing trends, including a $300m+ build that will see two new data centres in Hobsonville and Silverdale in Auckland's northwest by 2022.
The pair note that CDC's closest competitor, ASX-listed NextDC, has been on a tear, with its market cap doubling to A$6.2b over the past year.
NextDC is trading at a 49x ebitda multiple. Applying the same to CDC, Harvey-Green and Anderson get a $7.2 billion total valuation, which would put the value of Infratil's stake at $3.2 billion - or roughly twice Infratil's current valuation.
Success is not certain in the highly competitive data centre market, where the global market is all about scale and dominated by the Big Three: Amazon's AWS, Microsoft's Azure and Google Cloud.
Still, the ForBarr pair reckon CDC - which partners close with Microsoft across the Tasman and could well figure in Microsoft's $100m+ regional data centre plans for NZ - should be on Infratil's books for at least $2.5b.
And their valuation of Infratil's data centre business - which translates to a lift from $1.54 to $3.50 on a per share basis - is the main reason behind their $1.33 increase in their 12-month target price to $5.95. (Infratil closed at $5.60 on Friday. The stock is up 16.7 per cent for the year).
However, Harvey-Green and Anderson keep their rating at neutral.
Their enthusiasm about CDC is matched by caution about Infratil's half-share in Vodafone NZ - which, like its peers, faces a mixed Covid-19 landscape.
Increased demand for broadband and mobile services has been offset by pandemic negatives such as the loss of lucrative roaming revenue and increased bad debt.
Spark recently warned that 2021 could be tougher than 2020 for Covid costs. And at its investor day last week, Infratil reiterated that it would also have a disruptive effect on Vodafone NZ earnings.
Shareholders were told that Covid-19 would wipe $60m to $75m from the telco's ebitdaf in FY2021 (ebitdaf was $481m in FY2020).
Harvey-Green and Anderson say the investor day presentation was short on numbers for Vodafone NZ.
They expect more detail on the telco at Infratil's half-year result on November 12.
Meantime, Infratil will today brief investors on its bid for Australian radiology chain Qscan.