Weekly Reports | 10:13 AM
This weeks's thematic, the AI megatrend that continues to offer considerable tailwinds for those companies in the slip stream of build out and refurbishment demand.
- SKS Technologies rides hyperscaler data centre boom as pipeline surges to $1.25bn
- Adrad targets Asian data centre growth with premium cooling solutions and defence tailwinds
- Shape'a modular construction momentum drives record project wins
By Danielle Ecuyer
This week’s quote comes from James Reilly, Capital Economics
"The VIX (US) is driven by demand for calls, too, and retail buying has reportedly risen to Covid-era extremes lately.
"The bigger picture is that these developments are odd and, alongside extreme dispersion in performance, means this equity rally comes with a bit of a health warning."
Victoria is leading the data centre boom
In the slipstream of the build out of data centres, SKS Technologies Group ((SKS)) this week upgraded its pipeline to $1.25bn against $573m at the release of 1H26 results in February.
The eye-catching uplift was underpinned by demand from existing data centre clients, Canaccord Genuity points out.
In some instances, design work had already started on projects, which is viewed as de-risking the opportunity of getting contracts over the line.
Victoria is highlighted as the increasingly preferred state for data centre projects, with faster planning approvals and more available land and space for development.
Equally, as noted by the broker, the State Government is proactive in accelerating approvals, versus NSW, which is experiencing delays.
The Victorian attraction stands in contrast with slower approval times, more challenged land availability and longer grid connection times elsewhere. Also, Victoria is the home state for SKS.
The analyst infers current FY27/FY28 forecasts could err on the conservative side, with the potential conversion of $1bn-plus of the $1.25bn of data centre projects to be awarded over the next year.
Of the upgrade, the data centre increase is to $1bn-plus from $424m at the end of 1H26.
The company also announced a new $22m electrical technology contract for a major retailer’s new Docklands headquarters. Work in hand has expanded to $355m, with circa $270m progressing into 2H27.
The project also boosts exposure to “complex, large scale commercial infrastructure” projects. A $20m rise in its CommBank ((CBA)) bank guarantee facility to $48m, for a total bank facility of $52m, supports future funding capacity for projects.
The broker lifts its FY27 revenue forecast by 14% to $506m. With the potential work on offer in the pipeline, the upgrade could still prove conservative.
The target price is lifted to $9.05 based on FY28 earnings forecasts for an EV/EBITDA valuation of 13x.
The expected compound average growth rate in earnings (EBITDA) is forecast at 51% versus the peer median of 13%.
The share price has responded favourably to the announcement, though Canaccord believes the current valuation remains “undemanding”, with potential for as much as $1bn-plus in data centre contracts awarded over the next 12-18 months.
Buy rating unchanged.
Bushmasters and growth in cooling solutions
Taylor Collison is upbeat on Adrad Holdings ((AHL)). While the stock fits into the microcap segment of the market, Adrad (market cap circa $100m) is the Australian market leader for backup generator cooling solutions in data centres.
As highlighted by SKS Technologies (above) and recent announcements from data centre-related companies, NextDC ((NXT)) and Infratil ((IFT)), data centre construction is rising exponentially.
Taylor Collison believes the company’s sales volumes should gather momentum post the addition of a new customer in 1H26. Equally, the broker points to market opportunities in Asia once Adrad has finished reorganising and consolidating its Asian operations.
While historically Asian “Powergen” customers found Adrad’s products too expensive and over-engineered for general power applications, the Asian data centre market is considered to offer more potential.
The premium, higher quality products are expected to be more suited to customers that require reliability and 100% uptime over a lower initial cost. The shift from restructuring to winning new customers and contracts is seen offering more potential upside.
Turning to the outlook for the truck sector, Taylor Collison expects sales to rebound in Australia over FY27 and FY28, with the company’s end markets set to benefit from increasing capex and tailwinds for the heat transfer solutions segment (cooling).
The announcement by the Federal Government of 300 new Bushmaster units is also a potential positive for FY27. Adrad has been a supplier since 2008.
While tweaking EPS forecasts down -4% for FY26 for higher fuel price impacts in distribution and rising copper prices, the FY27 EPS estimate has been lifted by 2% with the broker suggesting its forecast could prove overly cautious.
The stock trades at a -40% to -50% discount to electrical/data centre peers, which is attributed to the small free float and “unconventional executive remuneration”.
Neither of those factors are viewed as long term. Other challenges to valuation could be emanating from issues around the scale of distribution.
Adrad remains the major domestic operator with long term OEM relationships, the analyst stresses.
Target unchanged at $1.60 with a Buy rating retained.
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