Analysts differ on deferral of Digicel IPO

The decision by Irish billionaire Denis O'Brien to pull a potential $2 billion (€1.8 billion) flotation of his mobile phone company Digicel drew a mixed reaction from analysts and American IPO watchers.

While some saw his decision to postpone the part-sale of Digicel in New York as perfectly reasonable given the weeks-long market volatility, others viewed the price sought for a loss-making company as far too high and a turn-off for anxious investors.

Digicel planned its stock market debut at $13 to $16 a share, giving the company with annual revenues of $2.8 billion and debt of $6.5 billion a market value of between $4 billion and $5 billion.

“That looked pretty aggressive pricing to me,” said Jay Ritter, professor of finance at the University of Florida who tracks IPOs. “For a company that is not growing with $2.8 billion in annual sales, that is not profitable, a $4 billion-$5 billion valuation seems to be pretty hard to justify and that appears to be the reaction they got from the market.”

Another IPO tracker, Francis Gaskins of research company IPO Desktop, expressed concerns about Digicel’s growth outlook and the company’s balance sheet. “The IPO market is paying more attention to financial performance, after the recent correction,” said Mr Gaskins.

“Bigger is not necessarily better. What counts is top-line revenue growth and profitability, or at least a clear path to profitability. Digicel has neither.”

But Roger Entner, telecoms analyst at Recon Analytics in Boston, said that Digicel had “wisely recognised” that the numbers it wanted to achieve were not possible given the turmoil in the markets over concerns about growth in the world’s second-largest economy, China.

“The company isn’t in immediate need of funding and it has taken the wise decision to wait until the market rises again,” he said.

Delay

Jonathan Dann, an analyst at RBC Capital Markets, said that he believed Digicel’s decision amounted to a delay until markets improved.

He noted that markets had been "very volatile", particularly for Digicel's peers with interests in Latin American phone and cable markets such as Millicom and Liberty Global.

One Irish Wall Street executive noted the higher number of cancelled IPOs this year due to market turbulence.

The decision to abandon the IPO may not help Digicel when it looks to return to the market after conditions improve, said Prof Ritter.

“There is a little bit of a shop-worn tarnish,” he said. “It kind of limits the upside if investors see that they tried to go public at a $4 billion valuation and got resistance. It makes it hard to get that valuation in future unless something substantial changes.”