The latest research report has valued Nexion at a fair price of 77c, a significant premium to the current 22c price.
The valuation of hybrid cloud provider Nexion Group (ASX:NNG) is three times its current share price, according to the latest research report out of Bridge Street Capital Partners (BSCP).
BSCP acted as the lead manager to Nexion’s oversubscribed, $8 million IPO in February.
BSCP has derived its valuation using a Discount Cash Flow (DCF) analysis and a discount rate of 10 per cent, to yield a 77c per share valuation.
According to BSCP, the share price is currently trading on a FY22 Enterprise Value to Sales multiple of 1.2x, which it says is below peer averages. It also forecasts that the Company could generate $3.3m in EBITDA in FY22, and more than doubling to $6.7m in FY23 versus an Enterprise value currently of only $19.1m
On this basis, BSCP has initiated research coverage with a “Buy” rating on NNG stock.
Competitive edge in hybrid cloud services
BSCP believes that Perth-based Nexion has a clearly identified competitive edge as an emerging player in an extremely large and growing global market for cloud IT services. This is a key outcome, as Nexion position in a global market has been a key shareholder education focus of theirs.
This space includes mega players such Amazon, Microsoft, and Google, who have been reporting growth rates of 30% to 50% within the public cloud services segment.
Nexion itself is focused on supplying hybrid cloud services to corporate customers. Specifically, it is targeting growth via deployment of its proprietary hybrid “OneCloud” data centre nodes globally, with the first international deployment already underway in Auckland.
Supported by Aryaka’s industry leading cloud-first SD-WAN technology, OneCloud provides a flexible and customisable hybrid cloud solution, optimised for corporate application performance via co-locating Nexion-owned Aryaka PoPs directly alongside OneCloud datacentre nodes.
While cloud services have a range of benefits including flexibility, mobility and scalability, they also have limitations for business use relative to traditional on-premise IT data centres.
BSCP believes that a hybrid cloud offering, such as OneCloud, provides the best of both options. The hybrid cloud solution has also recently become the default choice for companies.
Latest figures show that the total market size for hybrid cloud services stands at US$50 to US$60 billion, and is expected to grow at 20 per cent per annum.
This has put Nexion in a very good position to benefit from the strong structural growth tailwind, which will provide it with a long runway for growth.
In terms of revenue, the company has two targeted revenue growth segments – the hybrid cloud service subscriptions OneCloud, and its Aryaka SD-WAN network bandwidth services – both of which complement each other.
OneCloud provides a flexible and customisable hybrid cloud solution, and is optimised for corporate application performance.
This is done by co-locating the Aryaka PoPs directly alongside OneCloud data centre nodes. In conjunction with the established Aryaka global PoP network, this provides for a dependable, low-latency hybrid cloud solution which can be deployed quickly.
BSCP also believes that Nexion’s management has outlined a reasonable strategy for growth, and in a short time since the IPO, has successfully implemented these plans by establishing partnerships with high quality global third-party IT service providers.