Payments company Cuscal may have locked in the support it needs for its $336.8m initial public offering, but the jury is out over how it will trade once it is listed.
Many believe its performance will provide insight into whether the market sees interest rate cuts as being on the agenda, because two-thirds of Cuscal’s profits come from the returns it makes from the funds it is holding from deposits, and that accounts for 10 per cent of overall revenue.
The other stock that swings depending on what is happening with rates is Computershare, which also holds funds in deposits as part of its business model.
Despite the strong support to date, with cornerstone commitments of about $170m representing about 51 per cent of the offering, some investors sidestepped the Cuscal offering because they thought interest rates were falling.
Also, while the appeal to some investors has been that the price is seen as cheap at 13 times net profit when the overall market is trading at 19 times, others say this doesn’t take into account a low level of return on equity.
The company manages the payment rails between merchants and customers, and because it is heavily regulated it needs to retain plenty of cash on its balance sheet, which limits the returns made to customers.
Yet its revenue growth will be strong based on volume increases projected.
The market had earlier been expecting a rate cut in Australia in the March quarter, but now many forecasters believe this will happen in the June quarter instead, as pay rises for government-related jobs are seen by some to be aiding wage inflation.
Cuscal, chaired by Elizabeth Proust, is selling shares at $2.50 each for a $479m market value. On Friday, it said the book is covered ahead of the November 25 listing.
Debt-free Cuscal, which provides payment services to banks, is being pitched as a group with a strong track record of earnings growth and something of an annuity-style investment.
Its owners include Bendigo and Adelaide Bank, Mastercard and other mutual banks.
Bell Potter, Ord Minnett and MST Financial are working as advisers on the transaction with Bank of America.
DigiCo REIT
Meanwhile, institutional investors are believed to be joining with retail investors in throwing their support behind HMC Capital’s $2.6bn data centre float, DigiCo REIT.
Retail investors are pouring $1bn into the deal while institutional investors would account for $600m in an IPO that is shaping up to be oversubscribed.
HMC Capital would own about $750m of the business, which it may sell once escrow arrangements lapse, while iSeek is being paid $250m in scrip for the $400m sale of the data centres to the new listed vehicle.
Institutional investors are betting that passive index funds will need to own the business, which will cause shares to rally following its December 16 debut.
The DigiCo REIT will have 13 data centre properties the group has purchased for about $3.9bn.
Seeding the deal is the iSeek assets and the Global Switch Australia data centres recently acquired for $1.94bn.
Crown owner Blackstone fancied to snap up Star
There’s talk that the New York-based private equity firm is once again having some serious conversations in the background about taking over Star Entertainment.
NAB weighs return to Scottish Pacific
The $1bn-plus sale process for the non-bank lender Scottish Pacific is yet to start in earnest, but there’s one party that has already been at least kicking the tyres.