On Tuesday, JPMorgan (NYSE:JPM) adjusted their stance on Goodman Group (GMG:AU) (OTC: GMGSF), upgrading the stock from Underweight to Overweight and increasing the price target to AUD40.00 from the former AUD32.00. This shift comes as the firm acknowledges the economic advantages of Goodman Group's turnkey data centre projects, which are now expected to be a larger part of the company's development pipeline.
The analyst from JPMorgan highlighted the expected mix of turnkey projects and powered shells in Goodman Group's global data centre development pipeline. The revised forecast envisions a roughly equal split between the two types of developments. Turnkey data centres, which include both the real estate and the operational infrastructure, are larger in value and take longer to complete than powered shells, which consist of the real estate component only.
JPMorgan's analysis suggests that turnkey projects could be approximately three times more valuable than powered shells and offer similar development margins of around 70%. Goodman Group anticipates kickstarting the majority of its 1.6GW secured power pipeline within the next two years, a move that could yield an estimated end value of approximately $30 billion, assuming an even distribution between turnkey data centres and powered shells.
The analyst also noted that the commencement of data centre development is poised to substantially increase Goodman Group's development work in progress. With development profits typically recognized closer to project completion, Goodman Group plans to forward sell some on-balance sheet projects early. This strategy is intended to maintain a consistent double-digit earnings growth trajectory in the coming years, leading up to a significant increase in profits expected from financial year 2028 onwards.
Goodman Group is positioned advantageously to benefit from the surging demand in cloud computing and the broader data centre market, which is being further propelled by the rapid expansion of artificial intelligence technology.
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