DigiCo: Initiating With a Fair Value Estimate of AUD 3.40 per Security and a No-Moat Rating

We initiate coverage of DigiCo with a fair value estimate of AUD 3.40 per security. We assign DigiCo no-moat, High Uncertainty, and Standard Capital Allocation ratings. We forecast revenue to grow at a compound annual growth rate of 22% through fiscal 2032 and EBIT margins to expand to 29% by fiscal 2034. We use a weighted cost of capital of 6.9%. DigiCo securities screen as materially overvalued and do not reflect our view of an overvalued sector with above-sector company risk. To reach the current valuation, we need to assume the company will generate high rates of return, which we don't think is likely given the competitive nature of the industry.