IFT - Infratil

[Snoopy]

"CDC is positioned for growth"

https://infratil.com/news/infratil-a...-equity-raise/

Slide 23 of this presentation contains a series of PIE graphs, the last, on asset values, showing that fully 31% (Canberra Data Centres, or CDC) and 25% (OneNZ), a total of 56% of all assets held now are held under the broad-brush label of 'telecommunications'. Who would have thought that Infratil is mostly a Telco now? Certainly not me!

I am not an Infratil shareholder. But I am now forced to take an interest, due to the other telecommunications assets that I do hold (principally Spark and Telstra).

I observe that Telstra are up front with co-operative efforts with the big US players, Amazon Web Services
https://www.telstra.com.au/business-...ons/amazon-aws

And Microsoft Azure
https://www.telstra.com.au/business-...icrosoft-azure

However, there is no information on now Telstra intends to buddy up with Infratil 48% owned CDC. So I have to ask, is Infratil via CDC, really in the strong position that they say they are in?

Next I look at Slide 24 in the presentation. This shows existing data centres targetting an 8-10% return per annum. Data centres under construction targetting a return of 10-15% per annum, with those on the drawing board looking to achieve a return of 15-25% per annum. Why are CDC so confident that their returns will increase with the hyperscale data centres from AWS and Microsoft Azure coming into the picture?

Slide 27 shows rack utilisation rates of 75%, 66% and 83%. However, the footnote says that these numbers include 'white space' and 'reserved'. Apparently, the meaning of 'white space', a term I am not familiar with, is:

"White space in a data center refers to the main operational area where key computing hardware, including servers, storage systems, and networking devices, is housed. This area is considered the data center’s usable space, primarily occupied by IT equipment arranged in hot and cold aisles. Data center white space is usually measured in square feet or square meters."

So, it looks like by including 'white space', CDC is including space where data storage equipment 'could be put', without any commitment from customers for data centre equipment to actually be installed there. By doing this, and including reserved space where customers are committed of utilising data centre space, which is not up and running yet, it looks to me like CDC are grossly exaggerating the real utilisation percentage capacity of their data centres.

I guess 'build it and they will come' 'at ever increasing return rates' is an investment strategy. But this CDC growth plan is giving me a high reading on my BSometer.

SNOOPY

[Snoopy]

I am not an Infratil shareholder. But I am now forced to take an interest, due to the other telecommunications assets that I do hold (principally Spark and Telstra).

Moving to New Zealand now, CDC officially opened their two NZ data centres, in Silverdale (SD1) and Hobsonville (HV1), in August 2022.

From an article dated 27-01-2023:
https://www.nzherald.co.nz/business/...OUQQMOGLV5JUU/
"For example, Canberra Data Centres (CDC) opened two 14MW hyperscale data centres in Auckland: one in Hobsonville and one in Silverdale, 28MW in total, for what it said was “an initial investment of more than $300 million”. And in January 2023, the firm said it had bought land to add another 12MW of capacity."
"So far, CDC’s twin centres are the largest hyperscale facilities in New Zealand - by default, given that they’re the first to build here in the supermassive hyperscale class - but competition is on the way."

"A $400m hyperscale data centre being built by Sydney-based DCI Data Centres at a 5.8-hectare site in Albany, bought for $66m from the Knight family, (who once wholesaled to garden centres). Ground was broken late last year (2022)".


Meanwhile what are Spark doing with their data centres?

---------------------

From Co-pilot AI with GPT-4 in Bing.
"Spark New Zealand has been actively investing in data centers as part of its three-year strategy. Here are some key points about their data center capacity:"

Takanini Data Center:

Spark completed a 10 MW expansion of its Takanini data center in August 2023. The Takanini facility utilizes a high-density contained aisle design, allowing for scalability up to and beyond 10 kW per rack, with maximum rack loads of up to 28 kW.

Overall Data Center Capacity:

Spark’s total data centre built capacity is expected to reach 22 MW in the current financial year (FY2024). They also have land held in existing sites for an additional 19 MW of capacity available for further development.

Market Position and Strategy:

Despite economic challenges, Spark has made solid progress implementing its strategy, including investments in data centers and 5G Standalone infrastructure. With the exponential growth in data, digitization, cloud adoption, and generative AI, demand for data center capacity is accelerating, and Spark aims to capture its share of this growing market.

---------------------

This means it looks like Spark, as of now, is operating at a very similar capacity to CDC, particularly when you take into account Spark's much higher capacity utilisation rate.

https://www.sharetrader.co.nz/showth...=1#post1047453
"88% of total Spark data centre capacity is already committed under contract,"


https://www.reseller.co.nz/article/1...tegy-ends.html
"Spark, which reported its 2023 results in August, already operated the country’s most extensive network of customer data centres across 16 sites, with the ability to add additional capacity."

Next, there is a Microsoft Azure data centre under construction in Auckland, of unknown capacity, which was scheduled to go 'online' late in 2023.

https://www.nzherald.co.nz/business/...OUQQMOGLV5JUU/
"Microsoft hasn’t put a price tag on the build, or detailed its specifications, other than to note that it’s above the Overseas Investment Office’s $100m threshold for approval. Anchor customers will include Fonterra, ASB, BNZ (which is taking the opportunity to move some 1000 apps to the cloud), ACC and Auckland Transport. The transport agency says the development will trim $2.5 million from its $50m per year IT budget and make it easier to add artificial intelligence capability to apps."

The 'Canberra Data Centre' has the inside running on many of the government databases in the Federal Capital of Australia. But do they have the same inside running here in NZ? I am not seeing it, although perhaps it is just that CDC are less 'shouty' about their specific achievements in NZ than Spark or Micrsoft?

SNOOPY

[Bjauck]

IFT is also my largest holding, thought the same way about not applying for all but when I read the offer document thru I have decided to apply for my full entitlement.

As you have to front up with the $$$$$ when you apply I shall wait till interest has been paid on those funds at the end of the month.

It was certainly a good read! They do seem really positive on CDC’s potential. Half of my entitlement is fine. I am happy for other retail holders to have the rest if they want! I have been a holder since the float in the mid 1990’s (one of my first holdings.) So they have tapped me for quite a bit of funding over the years. It hasn’t all been plain sailing though.

[Bjauck]

Loads of shares dropped on close. MSCI index I think

Friday night frights!

[maclir]

Slide 23 of this presentation contains a series of PIE graphs, the last, on asset values, showing that fully 31% (Canberra Data Centres, or CDC) and 25% (OneNZ), a total of 56% of all assets held now are held under the broad-brush label of 'telecommunications'. Who would have thought that Infratil is mostly a Telco now? Certainly not me!

I am not an Infratil shareholder. But I am now forced to take an interest, due to the other telecommunications assets that I do hold (principally Spark and Telstra).

I observe that Telstra are up front with co-operative efforts with the big US players, Amazon Web Services
https://www.telstra.com.au/business-...ons/amazon-aws

And Microsoft Azure
https://www.telstra.com.au/business-...icrosoft-azure

However, there is no information on now Telstra intends to buddy up with Infratil 48% owned CDC. So I have to ask, is Infratil via CDC, really in the strong position that they say they are in?

Next I look at Slide 24 in the presentation. This shows existing data centres targetting an 8-10% return per annum. Data centres under construction targetting a return of 10-15% per annum, with those on the drawing board looking to achieve a return of 15-25% per annum. Why are CDC so confident that their returns will increase with the hyperscale data centres from AWS and Microsoft Azure coming into the picture?

Slide 27 shows rack utilisation rates of 75%, 66% and 83%. However, the footnote says that these numbers include 'white space' and 'reserved'. Apparently, the meaning of 'white space', a term I am not familiar with, is:

"White space in a data center refers to the main operational area where key computing hardware, including servers, storage systems, and networking devices, is housed. This area is considered the data center’s usable space, primarily occupied by IT equipment arranged in hot and cold aisles. Data center white space is usually measured in square feet or square meters."

So, it looks like by including 'white space', CDC is including space where data storage equipment 'could be put', without any commitment from customers for data centre equipment to actually be installed there. By doing this, and including reserved space where customers are committed of utilising data centre space, which is not up and running yet, it looks to me like CDC are grossly exaggerating the real utilisation percentage capacity of their data centres.

I guess 'build it and they will come' 'at ever increasing return rates' is an investment strategy. But this CDC growth plan is giving me a high reading on my BSometer.

SNOOPY

You haven't read the document correctly. The 8-10% return is what Infratil targets for the 'core' business elements of its portfolio, this is not where the data centre business sits, you need to look at the next two categories Core Plus and Development and Growth.

[Snoopy]

You haven't read the document correctly. The 8-10% return is what Infratil targets for the 'core' business elements of its portfolio, this is not where the data centre business sits, you need to look at the next two categories Core Plus and Development and Growth.

Have a look at Slide 27 in the presentation maclir. This clearly shows elements of the data centre business in each of 'Core', 'Core Plus' and 'Development & Growth'. This suggests the data centre business is in all three operational categories, depending on the maturity of the particular data centre business unit in question.

SNOOPY

[huxley]

Just for fun, I asked a LLM:

What makes CDC data centers unique and what is stopping a competitor from replicating their business model?

CDC Data Centres stand out for several reasons:
Sovereign and Secure: CDC centers are highly secure and connected large-scale data centers across Australia and New Zealand. They prioritize security, ensuring that critical data remains protected.

Critical Infrastructure: Founded in 2007, CDC provides essential digital infrastructure that underpins security, social well-being, and economic progress in the region.

Agility and Growth: CDC has expanded through new campuses and increased capacity on existing ones, adapting to changing needs.

As for competitors replicating their model, a few factors might hinder them:

Expertise: CDC’s experience and expertise in data center development and operation are hard to replicate quickly.

Trust and Reputation: CDC’s track record with government and critical organizations builds trust, making it a preferred choice.

Geo-Connectivity: CDC’s interconnected campuses via redundant high-speed networks provide continuity for businesses.

However, competitors could still enter the market by investing in similar infrastructure and building their reputation over time. It’s a dynamic landscape! 😊

[mike2020]

Snoopy IFT target overall growth at 18% p.a. if I recall from their roadshow. Either that or they have achieved it. I might have been distracted by some very hypnotic graphs.

[Snoopy]

Just for fun, I asked a LLM:

What makes CDC data centers unique and what is stopping a competitor from replicating their business model?

CDC Data Centres stand out for several reasons:

Sovereign and Secure: CDC centers are highly secure and connected large-scale data centers across Australia and New Zealand. They prioritize security, ensuring that critical data remains protected.
Critical Infrastructure: Founded in 2007, CDC provides essential digital infrastructure that underpins security, social well-being, and economic progress in the region.
Agility and Growth: CDC has expanded through new campuses and increased capacity on existing ones, adapting to changing needs.

As for competitors replicating their model, a few factors might hinder them:

Expertise: CDC’s experience and expertise in data center development and operation are hard to replicate quickly.
Trust and Reputation: CDC’s track record with government and critical organizations builds trust, making it a preferred choice.
Geo-Connectivity: CDC’s interconnected campuses via redundant high-speed networks provide continuity for businesses.
However, competitors could still enter the market by investing in similar infrastructure and building their reputation over time. It’s a dynamic landscape! ��

I presume that in the early days, 'Canberra' Data Centres' had the inside running on various Australian Federal Government contracts. I guess there is something to be said for the Federal government using an 'Australian' outfit for essential infrastructure {despite NZ's Infratil owning nearly 50% of the company these days). Although I see in the growth outlook (slide 13) that once the under construction build program is complete, Canberra will consume 39MW. which will be only 1/10 th of the CDC built total. So, if the Australian Government contracts are no longer the 'bedrock earners' driving this company, I guess it means CDC have been able to upsell to others on their reputation?

CDC are driving themselves towards a 'carbon neutral' future. Having datacentres in NZ will help this. In fact. with the Auckland based facilities being so near the Trans-Tasman undersea data cable, there is nothing to stop the 'Auckland' data centres being primarily used to service Autralian based customers.

On the 'security' point, I don't see a great market for insecure data centres. Although we occasionally hear about data breaches, there doesn't seem to be a 'shame and blame culture' on the unfortunate hacked data centre operator. My guess is that other data centre operators realise they are only one step away from being hacked themselves. So, I am taking this super secure reputation that CDC are keen to promote with a grain of salt.

I don't accept the AI point that data centres are difficult to replicate quickly. AWS and Microsoft Azure have put a lie to that, given their significant build program down under. A track record of success with government and critical organizations will certainly help CDC. But since CDC aren't building a data centre in Wellington, maybe they are not targetting government departments in New Zealand as customers? I am not sure about the 'geo connectivity' advantage point. Is there a high-speed cable connecting Silverdale and Hobsonville? Given they are both in the same broad power supply district, I am unsure of what benefits such a cable might have.

With infrastructure there is usually an 'incumbant advantage'. I am not doubting CDC's business reputation in Australia. But in NZ they just look like 'one of many new boys' on the block. Where is the 'competitive advantage' of CDC's data centres in New Zealand? I am not seeing it.

SNOOPY

[Bjauck]

Snoopy IFT target overall growth at 18% p.a. if I recall from their roadshow. Either that or they have achieved it. I might have been distracted by some very hypnotic graphs.

I think 15% annual return had been a long-standing aim.

From the capital raising “presentation”: Infratil continues to target portfolio returns of 11-15% per annum (after fees) over a 10-year period and has achieved a total shareholder return of 18.7% since its inception in 1994.

There are certainly lots of photos, pie charts and colourful graphs with arrows pointing upwards! British Airport investments a distant memory?