New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Infratil<br>FY22 Result — Ticking the Boxes</h2>
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<p><strong>OUTPERFORM</strong></p>
<p>Infratil's (IFT) FY22 result delivered on our three key focus areas. (1) IFT cemented its previous qualitative guidance to ~+40% FY23 EBITDA growth for Canberra Data Centres (CDC). While this was in-line with our expectations it illustrates that CDC is continuing to grow at breakneck speeds and bodes well for FY24; (2) Underlying Vodafone NZ EBITDA grew ~+12% versus FY21 with ongoing margin expansion evident. Some of this was driven by a modest COVID-19 reversal, but FY22 numbers also included substantially increased Software as a Service (SaaS) spending; and (3) IFT reiterated strong external capital interest in Vodafone NZ towers and Longroad Energy, both of which remain potential positive catalysts.</p>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Target price</strong>:&nbsp;Increased to NZ$9.10 from NZ$9.05</li>
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<h3>CDC&nbsp; —&nbsp;when will the music stop? Not for a long while still</h3>
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<p>IFT guided to FY23 EBITDA between A$220m–230m, the midpoint implies +40% EBITDA growth versus FY22 which would take the two year CAGR (FY21 to FY23E) to 25%, in-line with history. CDC has now delivered a five year EBITDA CAGR of 25–30%, growing EBITDA by a factor ~3.5x since 2017. How long can this continue? We think for a long while yet. CDC currently has 164MW of data centre capacity under operations, this is expected to reach 268MW by FY23. Sites for an additional 436MW have already been secured. If all of this capacity was to be built out CDC's total capacity would increase by a factor of 4.3x. This compares to the 4.2x that CDC has increased capacity over the last five years. Timing of this build out is uncertain at this stage, but CDC has an excellent track-record of delivering capacity and EBITDA growth. We estimate a future (&gt;5 year) EBITDA CAGR of &gt;20%. &nbsp;</p>
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<h3>Asset values appear to be holding up</h3>
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<p>Equities and bonds have sold off meaningfully since IFT announced its intention to look for a minority investor into&nbsp;Longroad&nbsp;Energy and for&nbsp;Vodafone&nbsp;NZ to potentially sell its passive tower assets. We had expected IFT to signal that its price expectations had moderated but were encouraged by&nbsp;IFT's&nbsp;comments that interest remained largely unchanged.&nbsp;While we appreciate that IFT has all the incentive to signal strong interest, it does not have a history of over promising and&nbsp;under delivering in relation to asset sales.&nbsp;</p>
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<h3>IFT remains one of our top picks across the NZ market</h3>
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<p>With a difficult back drop for NZ equities, we view IFT as one of the better&nbsp;risk rewards. Firstly, we see strong valuation support from its portfolio assets and have increased our&nbsp;target price by NZ5cps to NZ$9.10. Secondly, we believe upcoming potential&nbsp;corporate activity in the form of a potential minority investor into&nbsp;Longroad,&nbsp;and a potential sale of&nbsp;Vodafone's&nbsp;passive tower infrastructure, could act as&nbsp;catalysts for value creation.&nbsp; Finally,&nbsp;IFT's&nbsp;strong balance sheet leaves room for further material acquisitions.</p>
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Infratil FY22 Result — Ticking the Boxes

OUTPERFORM
Infratil's (IFT) FY22 result delivered on our three key focus areas. (1) IFT cemented its previous qualitative guidance to ~+40% FY23 EBITDA growth for Canberra Data Centres (CDC). While this was in-line with our expectations it illustrates that CDC is continuing to grow at breakneck speeds and bodes well for FY24; (2) Underlying Vodafone NZ EBITDA grew ~+12% versus FY21 with ongoing margin expansion evident. Some of this was driven by a modest COVID-19 reversal, but FY22 numbers also included substantially increased Software as a Service (SaaS) spending; and (3) IFT reiterated strong external capital interest in Vodafone NZ towers and Longroad Energy, both of which remain potential positive catalysts.


What's changed?&nbsp;



Target price:&nbsp;Increased to NZ$9.10 from NZ$9.05



CDC&nbsp; —&nbsp;when will the music stop? Not for a long while still


IFT guided to FY23 EBITDA between A$220m–230m, the midpoint implies +40% EBITDA growth versus FY22 which would take the two year CAGR (FY21 to FY23E) to 25%, in-line with history. CDC has now delivered a five year EBITDA CAGR of 25–30%, growing EBITDA by a factor ~3.5x since 2017. How long can this continue? We think for a long while yet. CDC currently has 164MW of data centre capacity under operations, this is expected to reach 268MW by FY23. Sites for an additional 436MW have already been secured. If all of this capacity was to be built out CDC's total capacity would increase by a factor of 4.3x. This compares to the 4.2x that CDC has increased capacity over the last five years. Timing of this build out is uncertain at this stage, but CDC has an excellent track-record of delivering capacity and EBITDA growth. We estimate a future (&gt;5 year) EBITDA CAGR of &gt;20%. &nbsp;


Asset values appear to be holding up


Equities and bonds have sold off meaningfully since IFT announced its intention to look for a minority investor into&nbsp;Longroad&nbsp;Energy and for&nbsp;Vodafone&nbsp;NZ to potentially sell its passive tower assets. We had expected IFT to signal that its price expectations had moderated but were encouraged by&nbsp;IFT's&nbsp;comments that interest remained largely unchanged.&nbsp;While we appreciate that IFT has all the incentive to signal strong interest, it does not have a history of over promising and&nbsp;under delivering in relation to asset sales.&nbsp;


IFT remains one of our top picks across the NZ market


With a difficult back drop for NZ equities, we view IFT as one of the better&nbsp;risk rewards. Firstly, we see strong valuation support from its portfolio assets and have increased our&nbsp;target price by NZ5cps to NZ$9.10. Secondly, we believe upcoming potential&nbsp;corporate activity in the form of a potential minority investor into&nbsp;Longroad,&nbsp;and a potential sale of&nbsp;Vodafone's&nbsp;passive tower infrastructure, could act as&nbsp;catalysts for value creation.&nbsp; Finally,&nbsp;IFT's&nbsp;strong balance sheet leaves room for further material acquisitions.


Infratil: FY22 Result — Ticking the Boxes

Infratil Ltd

Infratil: FY22 Result — Ticking the Boxes