By Tess Bennett
David Di Pilla’s HMC Capital has turned its attention to one goal – convincing a pessimistic market that its newly listed data centre business is no stinker. And it wants to get that done before fund managers and institutional investors close shop for the year and head off for their summer holidays.
Last week, shares in DigiCo Infrastructure REIT slumped some 14 per cent on their first day of trade after a $2 billion float, the largest of the year. By Wednesday, they had recovered to trade at $4.65 per share – still a long way off the $5 that stock was priced at when the business hit the bourse.
To turn around sentiment, Mr Di Pilla, a veteran dealmaker, has pulled out all the stops. More than 40 institutional investors and sell side analysts were given the sales pitch on Wednesday morning, in a presentation that stated its portfolio of 13 newly acquired data centres would deliver $163 million in underlying earnings this financial year.
DigiCo’s chief executive Damon Reid – who joined the company when HMC acquired the assets of Global Switch Australia in October – led investors on a tour of its Ultimo site, emphasising plans to win contracts with government customers and more than triple the site’s capacity. The two Global Switch assets in Sydney were the cornerstone of the new real estate business.
Then there was the emergence of a bullish analyst note from Green Street, a California-headquartered research house focused on real estate, that described the $5 per share float price as “fair”.
“DigiCo REIT is reportedly oversubscribed at the $5/sh offer price, which is a fair valuation for the company when considering an external manager that needs to prove itself to public investors, a more levered balance sheet, and some risk of execution,” Green Street analyst David Guarino wrote.
That has not been the unanimous view of other brokers. Morningstar’s Roy van Keulen was the first to publish his research last week, and said it was unlikely that DigiCo would be able to generate the high rates of return needed to maintain its $2 billion valuation. It was worth around $3.40 per share, Mr van Keulen wrote in his note to investors.
Mr Di Pilla said in an interview that DigiCo’s assets were some of the best, including those purchased from Global Switch, which have now been combined into one. “[The Ultimo site] is a bit of a unicorn. It’s a rare asset in the global landscape and investors are keen to know more, so we opened up the doors today to let them know what it’s all about,” Mr Di Pilla said.
HMC retains an 18 per cent stake in DigiCo after underwriting the float.
Mr Reid and Mr Di Pilla’s pitch appears to be working, at least for some major investors who said some of their concerns had been allayed.
Peter Davidson, the head of listed property at Pendal, said the tour on Wednesday had given shareholders comfort about the DigiCo’s executive team’s ability to expand the Sydney data centre campus.
“Global Switch Team had good bench strength in sales operations and delivery,” said Mr Davidson. “Damon Reid, the CEO of DigiCo, had been with Global Switch for 20 years and clearly knew his way around a data centre,” he said.
“Damon’s team is already well down the path on the Ultimo expansion. Procurement is under way; DigiCo are adding an extra 60 megawatts of storage capacity. The brownfields development seems to well-conceived and attainable; there is plenty of spare space there.”
Mr Di Pilla said the weak trading was caused by soft volumes leading into Christmas and the market weakening in December.
“Sometimes the size of these things and the sheer volume of equity that needs to be raised can result in them being a little soft in the week after they raise. But then they find their level and go again,” he said.
Shaun Weick, an analyst at Wilson Asset Management, which had bought into DigiCo at the float, said the fund manager had taken advantage of the weaker share price to increase its holding in the group.
“We are big believers in the business and the outlook, so we have been buying substantial amounts of stock on-market,” he said. “We think there’s a significant opportunity – not only from a valuation perspective – but we believe the markets underappreciating the highly strategic nature of the assets and the abilities of the HMC team to add value.”
