US$5 billion Firmus IPO divides investors after valuation trebles in two months

Australian data centre firm Firmus is set to launch a US$5 billion initial public offering, making it the country's second-largest IPO yet. The valuation of Firmus has surged nearly threefold over the past two months, reaching US$30.6 billion, according to a term sheet obtained by Reuters. This sharp increase in valuation has raised concerns among prospective investors who question the firm's "unproven" track record.

Firmus currently has debt of US$30 billion, which has also become a point of contention. With rising costs and interest rates, this debt burden is a cause for concern. Merlon Capital Partners portfolio manager Kirit Hara noted that the company's process prevents them from effectively buying into the firm's "hopes and dreams." The portfolio manager emphasized that they are anchored to what is actually on the table, and they struggle to achieve the A$40 billion market cap they believe the firm should aim for.

Indicative orders for the IPO have already surpassed the deal's size, but Morningstar strategist Lochlan Halloway pointed out that Firmus exhibits characteristics of a "boom phase" with a "wild increase in valuation in such a short period of time." Additionally, the company's debt pile is around six times its forecast earnings, further fueling investor skepticism.

While some investors are skeptical about Firmus' prospects, others remain undecided. Katana Asset Management portfolio manager Romano Sala Tenna explained that the firm's IPO prospects are polarizing, and he is still unsure whether to participate. He highlighted the fundamental arithmetic required to justify the valuation and the enormous amount of execution needed to support the current valuation.

However, some investors still see potential in Firmus as a trade. If passive funds participate and create strong demand for the shares after listing, it could be an attractive opportunity. Blackwattle Investment Partners, for example, would not be bidding for Firmus stock due to a lack of confidence in the delivery of future projects. Instead, they prefer exposure to the AI theme through companies with a better track record, such as Goodman Group.