Digital 9 Infrastructure Share Discussion Threads

[duncansawalker] 08/10/2024 19:27

Got the be slightly careful on timings here, Cellnet was hived off end 2019...

[popit] 08/10/2024 18:12

dog239

“They value their 0.7% stake at 17m AUD. This infers a total Arqiva valuation of £1.2bn as at June 2019, which would imply DGI9's share (assuming constant valuation) at £584m.”

So this is about 65p per DGI9 share for Arqiva alone

And when the other assets are included it is not difficult to reach a NAV of over 80p

[dog239] 08/10/2024 15:34

hxxps://www.macquarie.com.au/assets/bfs/documents/adviser/investment-news/Macquarie-Global-Infrastructure-Trust-II-Class-A-021123.pdf

Update from Macquarie on their Global Infrastructure Trust, which is one of the small holdings managed by Macquarie. The Trust is winding up and the sole remaining asset is Arqiva.

"The remaining asset held by the Underlying Fund is the small position in Arqiva, a telecommunications company, that operates television, radio, and wireless communications infrastructure in the UK. This investment represented approximately 2% of the remaining assets of the Trust as of 31 May 2019, prior to any distributions paid. The Underlying Fund has a small holding position of approximately 0.7% in the company.

The Underlying Fund’s responsible entity has worked closely with the Arqiva management team during the year to optimise the company’s growth strategy, with a new long term business plan having now been approved by the Board. Other key initiatives include the refinancing of £345 million of senior debt that limits Arqiva’s exposure to higher inflation and with no impact on Arqiva’s recurring inflation linked revenues. Arqiva’s senior leadership team has also been bolstered with new hires such as Chief Technology Officer and Chief Legal Officer, respectively.

The Responsible Entity of the Underlying Fund continues to explore divestment options for the Underlying Fund’s stake in Arqiva and believes these initiatives will help maximise the attractiveness of the asset."

Here is a link to a valuation of Arqiva by Macquarie dated June 2019:

hxxps://www.investmentexchange.com.au/cgi-bin/common.exe?iAction=6001&sDocumentId=D3822

They value their 0.7% stake at 17m AUD. This infers a total Arqiva valuation of £1.2bn as at June 2019, which would imply DGI9's share (assuming constant valuation) at £584m.

[duncansawalker] 08/10/2024 13:49

Popit
Disagree on the ex-Arqiva positions completely, its very hard to see how we'd get 250M for them...Aqua - I don't see the EBITDA to justify a valuation premium over other fibre providers. EMIC is incomplete.
Also: we have very little data on capacity and utilisation. If they are utilising more and more capacity and still not driving revenue significantly then wholesale data transfer costs are declining rapidly and there is a current overcapacity issue. Where is the 'massive increases in data transfer demand for AI etc' in last year's numbers?
Re: Arqiva, we're more on the same page, I think Arqiva is being cleaned up bit by bit and in few years will look much rosier. Perhaps a 50M dividend by 2027(25m to DGi9 is 3p/share) Well covered by cashflow, and with the possibility of future larger dividends that got to be worth 60p/share. Minus the 250M VLN!

[duncansawalker] 08/10/2024 12:59

So, in fact given the % discount on voting rights to Dgi9, even if they had all the other shareholders on board, (75% of vote) they couldnt push anything changes through. So effectively Macquarie own the ransom strip, assuming our interests differ.
Normally i'd assume that an infra funds wants the large, safe inflation linked divis to pay out. Pensions wil want them against their liabilities.
Does anyone have any insight to what Macquarie's strategy might be?
Im assuming they'd wish to turn it around, put it on a de-risked footing, then take fcf/e as a dividend...or agree to sell with other shareholders in a P/E deal...

[hpcg] 07/10/2024 21:00

Good on you for checking the details dog239. As I say I don't think it matters, what is good for one shareholder is good for the others. I'd also be interested whether the holding company can be sold with its shareholding intact. That might be why it exists in the first place. Simply by being listed the control of DGI9 and thus D9 Wireless OpCo 2 Limited changes every time a share at the top level is traded.

[dog239] 07/10/2024 12:23

@hpcg, you would think that, but the Articles of Association imply otherwise.

I am currently reading them and the below seem to be the case:
To offer shares to people other than shareholders (i.e. IPO) requires the consent of ALL shareholders
To vary this right, requires the consent of 75% of shareholders
Board meetings require 80% of Directors representing shareholders to consent to any resolution
Any resolutions pertaining to "Shareholder Reserved Matters" (vaguely matters pertaining to any "Relevant Agreement" between the company and a shareholder, the details of which are private) require 80% consent.
DGI9 is not considered a "founder shareholder" like Macquarie, IFM etc, so has 2/3rds of the representation entitlement on the Board.


So no, it is not the case of simply getting one shareholder on board with DGI9's plans.

[williamcooper104] 06/10/2024 10:13

Of course good terms on a VLN means the seller is super happy with the price their getting

[williamcooper104] 06/10/2024 10:12

Yes - they actually got pretty good terms on the VLN The expectation was that there would have been free cashflow to both service the VLN and pay a distribution to equity They didn't understand the inflation swap and how that would swamp free cashflow

[bagpuss67] 06/10/2024 08:30

Arent the Arquiva dividends in lock up due to the VLN. Triple Point must have agree go thise terms when D9 acquired it's holding in Arquiva.

[jaknife] 05/10/2024 22:52

nigelpm,

"Strange that anyone would think a shareholder loan would be something that needed to be paid back and used in a liability calculation."

Popit is right in principle. Yes the shareholder loan needs to be paid back but it needs to be paid back to shareholders. Hence, one of the easiest ways to adjust the balance sheet is to simply ignore the shareholder loans.

Consider the situation where you incorporate a company with £100 of equity and then you lend £100 to that company.

If you were to then liquidate that company then you'd get £200 back even though the company shows net assets of just £100.

The shareholder loans are just a tax avoidance device. Arqiva gets to offset the interest that accrues on the loan and hence pays less tax. On the other side the shareholders don't pay tax on the interest as they're based in offshore jurisdictions.

JakNife

[craigso] 05/10/2024 19:05

"Beholden to Macquarie" or "whip hand" aren't terms I'd use. But clearly something didn't quite happen as planned, as DGI bought Arqiva precisely to fund its own dividend, but then found itself not receiving dividends from Arqiva. Whether that's a shareholder's agreement amongst the Aussies to vote together or debt covenents in danger of being breached by dividends or something else... I don't know.

There's also the not insignificant matter of getting the Triple Point apointees OFF the Board of Arqiva and replaced with sensible, empowered people who also have the ability to build relationships with the Board apointees of other shareholders.

Like it or not, you can't just send some random investment banker to Sydney on behalf of DGI9 to do a deal with one or more of the super funds. So you need to get Triple Point sacked and somebody new appointed.

[hpcg] 05/10/2024 18:06

Whilst we are on the subject of not understanding, I guess now is a good time to raise what I can only judge is ignorance of the Arquiva ownership structure. It isn't difficult to find, it's in the About Us section on the front page of the Arquiva website.

48% - D9 Wireless OpCo 2 Limited (us)
25% - Macquarie European Infrastructure Fund 2 (MEIF 2)
14.8% - IFM Investors (IFM)
5.2% - Motor Trades Association of Australia Superannuation Fund Pty Ltd as trustee of Spirit Super
5.4% - Health Super Investment Pty Ltd (a division of the First State Superannuation Scheme)
1.5% - Several small, minority holders managed by Macquarie

I have seen post that suggest, unless I misunderstand, DGI9 is beholden to Macquarie to make decisions, or has a worthless minority stake. Far from it, we have the whip hand to direct outcomes and need only 1 ally to have the vote. I wouldn't advocate for anything but a collegiate determination but the power, if not overall power, and impetus is most definitely with us.

[nigelpm] 05/10/2024 17:22

Strange that anyone would think a shareholder loan would be something that needed to be paid back and used in a liability calculation.

[tigerbythetail] 05/10/2024 16:52

The only wrinkle is that DGI9 manage to have a slightly bigger share of the shareholder debts than of the equity. From memory something like 51% of the debts and 48% of the equity. So not quite pari passu.
(That should add a few hours work to the legal bill when it's all settled up!).
Otherwise, yes, FITB is right.

[popit] 05/10/2024 16:05

EM

You are completely wrong about the valuation of Arqiva

On almost any valuation measure Arqiva is worth at least 40p to DGI shareholders and possibly much more

As said before the shareholder loans can be completely ignored and the real debt in Arqiva is about £1.5 billion

Arqiva has shareholder funds of over £900 million and so half of that is DGI9 or about 50p per share

There is also good reason to believe that the value in Arqiva for DGI9 shareholders could be far higher than 50p due to its position as the leading smart meter provider in the UK

Oak Bloke for example gives a valuation of over £1.50 for Arqiva in addition to the NAV of 45p

So a total valuation for DGI9 of about £2

This may seem excessive but it is certainly not very difficult to see a sale of Aqua etc for a total of 25p and then a valuation of Arqiva at 50p to get back to the previous NAV of 75p

hxxps://theoakbloke.substack.com/p/arqiva-fy24-a-dgi9-update

hxxps://theoakbloke.substack.com/p/shocking-news-from-dgi9?utm_source=publication-search

[craigso] 05/10/2024 13:32

EezyMunny, there's a very simple reason why Arqiva (equity + s/h loans) is worth more than zero. (putting aside the VLN for a moment)

It's because otherwise Macquarie and friends + DGI9 would be pulling a Thames Water and would strip every last pence out as dividend / s/h loan repayment before the whole company went bust.

And "has anyone done a DCF"? Yes, among other things the new DGI Board claims to be doing DCF analysis - at a discount rate that looks to be quite high, but perhaps realistic if you consider the VLN in between DGI's equity and Arqiva. We just don't know the number yet, but the new Board really has little incentive to be overly optimistic during their only chance to kitchen sink a lower, more achievable NAV.

[bagpuss67] 05/10/2024 12:08

The debts are due to the shareholders who could procure that they are written off if they wanted. They choose to keep them for tax structuring purposes. There is lots of discussion about this on here and in Oak Blokes analysis.

[foetus in your brain] 05/10/2024 12:06

The shareholder debts are owed pari passu to all shareholders. They are just a tax treatment. If 2 shareholders each have 50% of a company equity and 50% of its debt then you can write the debt off and you will increase the equity by that amount. So you can really ignore them. Not the other debts, obvs. But repaying interest on shareholder debt is in all material respects identical to paying a dividend.

[misterd1] 05/10/2024 12:02

Bagpuss - could you provide the logic please as surely these are debts that one day have to be paid back. How can they simply be ignored?

[nigelpm] 05/10/2024 11:30

Management have been replaced, a new lot have come in and have no incentive to overstate NAV - rock bottom now.

[bagpuss67] 05/10/2024 11:29

EM. You need to adjust for the shareholder loans to see the equity balance, gearing and leverags turns.

[eezymunny] 05/10/2024 11:17

Still lots of "Arqiva must be worth xyz" posts.

Has anyone done a DCF valuation of any variety? There´s a pretty clear case that the Arqiva equity is worthless, given debt and accrued interest IMO. Balance sheet insolvent to the tune of 5.5b, and 7bn if you take out intangibles. It´s a sorry state, is it not? Is the rest worth more than 150m? Probably not IMO. Going to be an interesting one to watch unfold but I´d at least be very wary of all the posts about EBITDA and NAV. People have been blathering about those since this was 100p+