Morgan Stanley upgrades Macquarie Technology, increases price target by 100%
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The news: Morgan Stanley has upgraded its rating for Macquarie Technology Group to ‘overweight’ from 'underweight' and has increased its price target by 100%, saying the financial and strategic value of its data centre assets are undervalued.
The numbers: The analysts have raised Macquarie Technology’s price target to $100 from $50. The company’s shares were up 5.95% to $79.79 by 1:41pm AEDT.
They also noted there could be a bull case for the shares to reach $125.
The context: The analysts said that while structural tailwinds for data centres were well known, with AI set to drive the need for higher compute power over the next three to five years, the company represented a different way to play the theme in Australia.
They said structural growth was embedded for the company’s data centres, and it had a high quality portfolio and an attractive pipeline of future data centre re-investment opportunities.
Morgan Stanley noted Macquarie Technology said its differentiator to competitors was that it had “excellence in customer service” and this had been sustained over decades as it had kept churn levels below average and maximised the lifetime value of customers.
While its enterprise value/EBITDA was trading at a premium it was a substantial discount to US data centre/cloud peers and NextDC. The analysts said the company had the potential to re-rate higher and expected the strategic value of the portfolio to increase against a backdrop of industry consolidation.
On Tuesday, Macquarie Technology outlined an equity raising after agreeing to acquire land and buildings at its Macquarie Park data centre campus in Sydney.
What they said: “Its data centre assets now represent 40%-50% of our unlevered group valuation … [its] shares have no participated in the rally of data centre peers [so] we think some catchup-is warranted,” Morgan Stanley analysts said.
“[Macquarie Technology] is not growing at the rate of main peer NextDC but there are advantages to this — MAQ’s development portfolio is more measured, thus it is not as capital hungry and at 15x FY25 EV/EBITDA it trades at a significant discount to NextDC on ~50x.”
The source: Morgan Stanley research
