DigiCo REIT (DGT.AX), a newly established globally diversified data centre owner, operator, and developer, has caught the attention of investors with its unique growth prospects and compelling valuation. The company is off to a strong start, with its key Australian asset, SYD1, being a high-connectivity, premium facility in Sydney’s central business district. After a recent site visit, it’s clear that DGT has significant development potential ahead, and its status as an Australian-owned entity adds an extra layer of appeal for local investors.
Solid Growth Outlook in Australia and the US
DGT’s Australian operations are anchored by SYD1, a facility with strong leasing activity, which is expected to help drive growth. But it’s the company’s international expansion that adds further intrigue. In the US, DGT is poised to benefit from largely risk-free near-term earnings growth as its CHI1 data centre comes online. This, combined with long-term growth potential from the LAX developments, positions DGT well for sustained expansion in both its home market and globally.
A Compelling Investment Thesis
Goldman Sachs has initiated a “Buy” rating on DigiCo REIT, with a 12-month target price of A$5.80, representing a potential upside of around 30%. One of the key reasons for the bullish outlook is DGT’s valuation. When factoring in the earnings DGT has already paid upfront for CHI1, the company is trading at an underlying FY25E EV/EBITDA of 24.6X. This is attractive, particularly when compared to global peers trading at 25-29X and DGT’s closest competitor, NXT.AX, which is priced at 44X (though it trades at 24X when accounting for its longer-dated development pipeline).
Financial Forecasts and Growth Drivers
Looking ahead, Goldman Sachs expects DGT’s EBITDA to grow from an annualized A$97 million in 2H25 to A$175 million in FY27. This growth will be driven by several factors, including A$68 million in earnings from CHI1, strong leasing activity at SYD1, and US-based escalators along with steady contracting in Australia. However, this expansion comes with a hefty capex forecast of A$400 million between FY25-27, primarily directed towards the development of SYD1 and LAX facilities. The company will also maintain a dividend distribution of 20 cents per share annually. While this will increase DGT’s gearing, management is confident that asset recycling and strategic capital partnerships will keep gearing within the targeted range of 35-45%.
Key Risks to Watch
While DGT’s outlook is positive, there are a few risks that investors should monitor. These include the approval of SYD1 and LAX developments, the potential for contract wins or churn, and macroeconomic factors such as foreign exchange movements and interest rates. As DGT works through these developments, more detailed disclosures on pro-forma NPAT and balance sheet strength are expected in the 1H25 update.
Conclusion
DGT offers a unique opportunity to tap into the rapidly growing, increasingly supply-constrained global data centre market. With a solid Australian base and promising expansion in the US, DigiCo REIT looks well-positioned for long-term growth. Combined with its compelling valuation and 30% upside potential, DGT’s future looks bright, making it an attractive addition to a diversified portfolio.
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