Goodman shares rise as analysts flag data centre potential
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The news: Goodman Group shares lifted on the ASX as Morgan Stanley analysts raised their price target on the back of heightened data centre demand.
The numbers: Morgan Stanley analysts increased their price target for Goodman from $34.33 to $35.30 and kept their 'overweight' rating on the stock.
Goodman's shares were up 3.9% to $33.90 at 2:00pm AEST. Over the past 12 months its share price has surged 69.24%.
The analysts said that Australia will require an additional 1,500 megawatts (MW) of data centre capacity by 2030, compared to today's capacity of around 1,000MW.
They saw Goodman as a "key enabler" of this trend, estimating that data centres now made up $9 billion or 15% of the company's market cap. The company owns land with 3.6 gigawatts (GW) of secure power, which could translate to 2.6GW of data centre developments.
In total, data centres could provide $39 billion of end value to Goodman if they are developed as "powered shell" projects, with basic power and connectivity infrastructure. This could rise to $196 billion if they are built as turnkey projects, including racks, cooling and plumbing.
While most of Goodman's pipeline is expected to be powered shell (buildings, electricity, fibre), analysts see a 25% upside potential to its FY28 earnings per share consensus for each additional $1 billion per year production developed as turnkey.
The share price rise was also part of broader gains within the real estate sector that was the best performing sector by afternoon trading at 1.37%.
The context: The analysts flagged that there could be additional upside potential if more power is added to Goodman's current pipeline, if power becomes scarcer, or if the company develops a higher proportion of sites as turnkey rather than powered shell projects. However, to date the Goodman has not operated any data centres, or expressed the desire to become an operator.
Morgan Stanley said it lifted the price target for the stock after factoring in more optimistic assumptions around Goodman's data centre developments into their bull case.
The source: Morgan Stanley research
