Fund managers are querying if this year’s biggest initial public offering on the ASX is lacking support from institutional investors after DigiCo’s blockbuster float was met with a double-digit fall in share price.
Shares in DigiCo closed 9 per cent below their $5 initial offer price, at $4.55, on its first day of trading last week. The stock tracked even lower on Monday, to about $4.02, before regaining ground to close down another 5.5 per cent at $4.30.
HMC Capital boss David Di Pilla.Credit: Louise Kennerley
“We acknowledge the [share] performance. We’re disappointed, but this will not define DigiCo,” said real estate dynamo David Di Pilla.
The former investment banker is head of ASX-listed HMC Capital, which raised nearly $2 billion after acquiring a string of valuable data centres in the US and Australia before listing the enlarged business last week under the banner of real estate landlord DigiCo.
“Let’s not lose sight of the fact it was the biggest IPO in the last six years in Australia. We had a huge amount of interest, a lot of demand. It was heavily oversubscribed,” Di Pilla said.
The well-publicised float of DigiCo’s $4 billion portfolio of data centres was fuelled by investors wanting to tap into the explosive growth of AI and growing demand for data storage.
However, Tribeca Investment Partners fund manager Jun Bei Liu said the allocation of stock to underwrite the float appeared to be skewed towards retail investors rather than larger institutional funds.
“Many fund managers actually didn’t have access to it,” Liu said. “There’s, therefore, not the level of support that you would normally expect of this kind of IPO.”
Liu said her fund, and others, didn’t get an opportunity to meet the new company’s managers and discuss DigiCo’s business. “The asset itself is not straightforward. So when it listed, or even today, there’s no one to step in to buy it,” she said.
Morningstar analyst Roy van Keulen caught investors’ attention when he sent a note to clients in early December, before the company’s float, in which he argued the new data centre landlord’s stock was worth about $3.40.
On Monday, Keulen said DigiCo will provide investors with a “relatively speculative” exposure to growth in AI-driven data centres as most of its assets were either “turnaround stories or development projects”.
“We also believe DigiCo’s assets have been acquired near a likely peak in the highly cyclical data centre sector,” he said. “Despite the company riding a hot trend, in the long-term, we view data centres as no-moat businesses, as barriers to supply are relatively low.”
Di Pilla said DigiCo has high-quality assets, its financial metrics are compelling, and its growth outlook remains strong. “We’re confident that in the new year, once we get through this year-end trading period where volumes are probably a bit lower, it’ll come back strongly,” he said.
HMC wrangled two sizeable property deals within months of each other this year to seed the new company and support its underlying infrastructure and growth prospects.
It purchased Global Switch Australia in a $1.9 billion deal in October, then tied up iseek in a $400 million acquisition. Di Pilla said the Global Switch assets in Sydney are a “key part of the value story” that will unlock future growth for the new company.
Angus Aitken, from boutique investment firm Aitken Mount Capital Partners, attributed DigiCo’s slump to “instant gratification” investors who “thought they were going to make 30 per cent day one” and are now selling.
“The sellers know zero more than you; don’t second guess yourself just because the stock prices are down. If you buy stock and sit on them for the next few years in both names [HMC and DigiCo], I am pretty sure you are going to make good money,” Aitken said.
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