Infratil has hiked the book value of what was already its most valuable asset - a move that signals AustralianSuper will have to sharpen its $5.4 billion takeover offer if it wants to engage the Kiwi infrastructure company's board.
Following an independent evaluation, Infratil says its 48 per cent stake in Canberra Data Centres (CDC) is now worth between A$2.04 billion ($2.2b) and A$2.33b ($2.5b).
That makes it more than double the value of Infratil's next four largest assets, its holdings in Tilt Renewables, Vodafone NZ and Trustpower, which are all worth around the $1b mark, and its two-thirds share of Wellington Airport, worth around half a billion.
"This valuation increase reflects the acceleration in demand that CDC is experiencing from new and existing customers across its portfolio, which is expected to result in its existing data centres reaching capacity earlier than expected, with a consequential effect on forecast growth," Infratil said in a statement to the NZX.
But although a significant increase over a September valuation of A$1.6b (itself a near-doubling 2019's A$889.2m), the asset is still undervalued by the calculations of Forsyth Barr analysts Andrew Harvey-Green and Scott Anderson.
The Forbarr pair value Infratil's half-share in CDC at $3.2b.
Their benchmark is CDC's closest competitor, ASX-listed NextDC, which has doubled its market cap to A$6.2b over the past year (although since their calculations, NextDC has been caught in an Aussie tech dip, taking it down to A$5.4b or $5.6).
Infratil bought its CDC holding for A$392m in 2016 (it would later expand further into technology by teaming with Canada's Brookfield to buy Vodafone NZ).
Since then, there's been a boom in cloud computing, driving demand for more data centres - accelerated in 2020 by the Covid-fueled work-from-home boom.
In FY2020, its share of CDC profit contributed $59.6m to Infratil's operating earnings, up from the prior year's $37.6m.
CDC has aggressive as the pandemic accelerates cloud-computing trends, including a $300m-plus build that will see two new data centres in Hobsonville and Silverdale in Auckland's northwest by 2022.
The build - already underway - marks CDC's first foray outside Australia. The Hobsonville and Silverdale server farms will also be the first "hyper-scale" size data centres to hit the relatively small NZ market, which has so far been ignored by two of the big three in data centres - Amazon Web Services and Google - in terms of a direct presence. The third big multinational player, Microsoft, recently gained Overseas Investment Office approval for to build a $100m-plus data centre in Auckland, but it's not clear if that will be a separate initiative to the CDC build (Microsoft and CDC are close partners in Australia, sharing infrastructure).
There were no re-valuations of any other Infratil assets, including its 65 per cent Tilt holding which, as things stand, it is looking to offload by mid-year.
VALUATION HIKE = FEE HIKE
Australian business commentators huddled in AustralianSuper's corner have noted the chunky performance fees that go to Infratil's management company, Morrisson and Co, which are tied to the valuations of several buckets of assets.
And those fees - which have already drawn the ire of local investor ACC, which favours engagement with AusSuper - are set to increase with CDC's latest revaluation (officially dated December 31, 2020).
"The estimated International Portfolio Annual Incentive Fee is now $147.6m, an increase of $89.9m since the 30 September 2020 accrual, Infratil says in its statement to the NZX.
At least one Aussie pundit has accused Infratil's board of being conflicted over the "lifeblood" of the management fees, pointing out that Infratil CEO and director Marko Bogoievski is also CEO of Morrison and Co.
But ahead of Christmas, Infratil chairman Mark Tume hit back against the claims, saying all board members beyond Bogoievski were independent; that Morrison's $70b in managed investments outside of Infratil dwarfed its interest in the infrastructure company; and that Infratil's average 26 per cent return over 18 years came after taxes and management fees.
A spokesman for AustralianSuper said this morning that the fund had no comment on Infratil's re-valuation of CDC. AusSuper would make its next statement on its takeover bid "in due course", he said.
Infratil said it would provide a further update on CDC and its growth forecast at its investor day on February 21.
Infratil shares were up 7c to $7.41 in midday trading (for a $5.39b market cap). The stock is up 41 per cent over the past year.