Northern Data Group — First transparency milestone achieved

Northern Data Group (XETRA: NB2)

Last close As at 12/06/2024

EUR22.65

−0.25 (−1.09%)

Market capitalisation

EUR1,212m

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Research: TMT

Northern Data Group — First transparency milestone achieved

Northern Data Group released its FY22 results as scheduled, reflecting delays due to its transformation into a diversified high-performance computing (HPC) infrastructure solutions provider. Despite significant crypto price declines, the group achieved year-on-year revenue growth and adjusted EBITDA positivity, driven by investments in mining compute power and a small inaugural cloud computing contribution. Ethereum’s shift to proof-of-stake led to substantial impairment, driving an operating loss. That said, Northern Data was able to repurpose a share of the graphic processing units (GPUs) from Ethereum mining for cloud computing, enabling expected FY23 revenue growth of over 10x in the recently formed Taiga Cloud division. Investments in NVIDIA H100 hardware and requisite data centres, alongside unmet demand from target customers, underpin management’s expectations for at least a further 10x Taiga revenue growth in FY24. Buoyed by bitcoin’s FY23 and FY24 appreciation, Northern Data is well-positioned for strong diversified revenue and profit growth.

Max Hayes

Written by

Max Hayes

Associate Analyst

TMT

Northern Data Group

First transparency milestone achieved

FY22 results

Tech hardware and equipment

25 March 2024

Price

€27.0

Market cap

€1.4bn

Net cash (€m) at 31 December 2022

39.9

Shares in issue

53.5m

Free float

100%

Code

NB2

Primary exchange

Frankfurt

Secondary exchange

N/A

Share price performance

Business description

Northern Data is a German-listed company, operating highly energy-efficient data centres across Europe and the US. The group is pivoting from a pure-play cryptocurrency miner into a diversified provider of high-performance computing solutions. Its updated strategy was marked with the launch of three new divisions: Peak Mining, Ardent Data Centers and Taiga Cloud, with each targeting a different area of the value chain.

Analysts

Max Hayes

+44 (0)20 3077 5700

Katherine Thompson

+44 (0)20 3077 5700

Northern Data Group is a research client of Edison Investment Research Limited

Northern Data Group released its FY22 results as scheduled, reflecting delays due to its transformation into a diversified high-performance computing (HPC) infrastructure solutions provider. Despite significant crypto price declines, the group achieved year-on-year revenue growth and adjusted EBITDA positivity, driven by investments in mining compute power and a small inaugural cloud computing contribution. Ethereum’s shift to proof-of-stake led to substantial impairment, driving an operating loss. That said, Northern Data was able to repurpose a share of the graphic processing units (GPUs) from Ethereum mining for cloud computing, enabling expected FY23 revenue growth of over 10x in the recently formed Taiga Cloud division. Investments in NVIDIA H100 hardware and requisite data centres, alongside unmet demand from target customers, underpin management’s expectations for at least a further 10x Taiga revenue growth in FY24. Buoyed by bitcoin’s FY23 and FY24 appreciation, Northern Data is well-positioned for strong diversified revenue and profit growth.

Year end

Revenue (€m)

Adjusted EBITDA
(€m)

PBT*
(€m)

EPS*
(€)

P/sales
(x)

P/E
(x)

12/20

16.4

(12.3)

(83.0)

(7.3)

86.2

N/A

12/21

189.9

89.6

342.1

13.2

7.4

2.0

12/22

193.3

42.4

(251.6)

(10.6)

7.3

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

FY22 revenue grew 1.8% y-o-y to €193m, driven by a 40% y-o-y increase in crypto mining computing power provision to €155m. The growth reflects a 133% market share expansion (measured by exahashes per second (EH/s)), offsetting a 63% bitcoin price decline and corresponding mining business revenue declines. As per our initiation, Northern Data continues investing significantly in Peak Mining, spending US$150m on the latest miners to achieve efficiency and the 14EH/s target by end-FY24, up from 3.34EH/s at end-FY23. This investment, alongside rising bitcoin prices over 2023 and year-to-date, underpins a positive Peak outlook.

Notably, the group reported inaugural €1.6m cloud computing revenue in FY22 and joined NVIDIA’s Partner Network as a Preferred Cloud Services Partner in Europe. Management expects Taiga Cloud division’s revenue to grow to €11–14m in FY23, supported by its preferred partner status and continued GPU investments. As of Q124, the division had €30m annual run-rate revenue and four contracts in its H100s pipeline (33% H100 utilisation), potentially equating to over €105m annual revenue assuming €2 per GPU hour. Deploying H100s on schedule (Q324 finish) and converting the pipeline are key near-term Taiga milestones.

On an adjusted basis, FY22 EBITDA fell 53% y-o-y, reflecting investment in its diversified HPC strategy through a 65-employee increase to 209, as well as inflationary and rate pressures. Ethereum’s shift from proof-of-work to proof-of-stake led to substantial impairment charges and one-off trading costs, resulting in a €266m reported FY22 net loss. Most impairment charges were non-cash and the sale of €127m in cryptocurrency generated positive operating cash flow, allowing for the repayment of a €76.9m shareholder loan. The group was debt free as at end-FY22 but initiated a €575m debt facility in FY23 to invest in the HPC strategy. We will look to introduce forecasts after the FY23 results, scheduled for end-H124.

General disclaimer and copyright

This report has been commissioned by Northern Data Group and prepared and issued by Edison, in consideration of a fee payable by Northern Data Group. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Northern Data Group and prepared and issued by Edison, in consideration of a fee payable by Northern Data Group. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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