Digital 9 Infrastructure Share Discussion Threads

[craigso] 25/10/2024 07:54

Substantial volume went through yesterday. Somebody picking up a sizable position ahead of good news?

[duncansawalker] 24/10/2024 20:15

Beyond the senior/subordinated bondholders being paid interest / or any amortisations due, Arqiva's shareholders can do as they wish with the surplus. At what point derisking is less important than paying dividends, who knows...Im guessing 2027.

[loglorry1] 24/10/2024 19:12

About 3/4 of EBITDA comes from broadcasting. Not sure how much of that is from the BBC.

There's plenty of debt within Arqiva to pay down before they can pay a divi up.

[duncansawalker] 24/10/2024 13:53

Another way of looking ar Arqiva I suppose is to imagine, with the de-risking and lower interest / swaps / inflation finance costs, can we see in the future a time where Arqiva can pay shareholders 50M dividend, reasonably covered, with clarity to this dividend going forward?. That'd be 25m or 3p a share for DGi9 holders and at a 5% yeild would make the DGi9 equity half worth 50-60p, minus the VLN. That doesnt seem impossible, though obviously the BBC contract risk is the major issue. Does anyone know what % of the telecoms ebitda comes from the BBC component?

[loglorry1] 22/10/2024 13:52

I didn't say it was worth nothing I said its contribution to NAV might end up being nothing because DGI9s c50% stake is worth less than the Vendor debt.

I'd be very happy if we end up with £1.40 for the remaining assets but I think that's highly unlikely.

[kernelthread] 22/10/2024 13:34

>>There was a planned IPO of Arqiva a few years ago at a valuation of about £6 billion

>>The telecoms business has since been sold for about £2 billion but that still leaves a valuation of about £4 billion for Arqiva

That doesn't really follow. Just because a few years ago they valued the company at £6bn doesn't mean it would still be valued at £6bn now. Companies do sometimes go down in value. A few years ago we were under ZIRP - they were basically paying people to borrow. Borrowing costs have rocketed in that time, which would make a difference if there's lots of debt involved.

Also, even if Arqiva eventually ends up worth 100-200p per share that doesn't mean DGI9 holders will see that. The DGI9 trust is winding up so there will be some pressure to get the assets liquidated in a reasonable timeframe. I still reckon the new investment manager's contract terms tell you what you're likely to see - 26 to 35p per share, with an outside chance of 60p. If they thought there was any chance of 100p, they wouldn't have capped their fees at 65p.

[popit] 22/10/2024 13:04

The Arqiva valuation of £6 billion from Oak is no more silly than your valuation of nothing

There was a planned IPO of Arqiva a few years ago at a valuation of about £6 billion

The telecoms business has since been sold for about £2 billion but that still leaves a valuation of about £4 billion for Arqiva

That may be too high but nothing is also too little

The correct valuation is probably somewhere in the middle of these two figures

And a valuation of perhaps £2 billion would give over £1 a share to DGI9 shareholders for Arqiva alone

The remaining assets could bring the value to about £1.40 for DGI9 shareholders over the next two or three years

[loglorry1] 22/10/2024 12:41

"How could the largest smart meter business in the UK be anything but extremely valuable?"

Since you asked.....

Arqiva don't own the smart meters (they own some), whereas SMS did. The revenue per meter at Arq is lower. They have much greater costs because they are running other assets like the broadcast network. There is not much growth in the meter business in recent months.

Of the £337m EBITDA how much is from metering?

Revenue from Smart Metering was £198.7m in the last FY with EBITDA of £66m vs £341m for the broadcast business. (page 27)

Oakbloke is just a ramper. To take £66m EBITDA and say its really £337m and putting it on a multiple of 11x and say meters are worth £3.7bn is just silly. It's cherry picking then daft multiple expansion on steroids.

Then you have the debt within Arq and the Vendor Loan note and let's not forget the difference between EBITDA and Operating Profit.

I think a decent story could be painted for Arq and the Earnout which could stay in a listing perhaps and be worth something but it's hard to see it being worth a lot of the NAV based on the last years accounts.

hxxps://www.arqiva.com/group-financial-results/2024/Arqiva-Group-Limited/AGL%20Annual%20report%202024_FINAL-SL%20Signed%20-%20with%20PwC%20Audit%20Opinion.pdf

EDIT: I'm long and have bought recently so I'm currently talking down my own book here.

[bdbd11] 22/10/2024 12:31

It's somewhat surprising to me that we have insiders buying in size, while others head for the exit. It's not like directors believing their own growth story and may be blindly bullish. These are new insiders who would be party to much better info than we have and are buying for the sole purpose of getting their money back in short(ish) order with a very nice gain. I just topped up again at sub 18p.

[mark5man] 22/10/2024 12:30

@eezymunny - I can't reproduce the analysis but there have been several well received attempts at valuing non Arqiva assets in this thread. Suggest you go back to the NAV slashing RNS and read forward - in between deep unhappiness and threats of action there were a number of posts restating the case. So much so that I doubled my holding bringing average to 19.5p. I can live with that although still under water here currently

[popit] 22/10/2024 12:26

How could the largest smart meter business in the UK be anything but extremely valuable?

If the new managers do their job well over the next few months and years then it should be possible to realise near to £1 a share for DGI9 shareholders

Oak may be a little optimistic at times but he makes a reasonable case for an eventual value of nearer £2 a share

hxxps://theoakbloke.substack.com/p/deep-deep-into-arqiva-part-of-dgi?utm_source=publication-search

Arqiva is as exciting a holding as I thought. In fact more so.

Let’s consider the recent news about fellow smart meter provider Smart Meter Systems (SMS) being acquired. Let’s consider what that means for Arqiva. For a start Arqiva’s smart metering is almost double the size of SMS. (£110m vs £189m of ILARR - I’m being generous and including traditional meters in SMS’s £110m… Smart Meters are £70m actually). Arqiva have 25% market share of UK Smart Meters versus SMS who have 14%. SMS was bought at an EV / EBITDA multiple of 20.0x (calculated based on LTM Pre-exceptional EBITDA of £71 million as of June 2023).

By comparison Arqiva has an EV/EBITDA of 11 (£3,714.2m/£337m) - again stripping out all the shareholder loan note stuff, so that implies that Arqiva could be worth £6.74bn (£337m x 20). If it were to occur, that would equate to a £1.45bn gain to DGI9

(Note SMS have a EV car charger, a BESS and energy services business whereas Arqiva have a Media & Broadcasting business so you may disagree the same valuation methodology should apply…… in my opinion Arqiva’s other business is at least as valuable as asset as its Smart Meter business)

The growth plans and the tailwinds it address along with the stability of utility like RPI linked income make this attractive indeed.

You could buy the whole of DGI9 currently for £255m and own 48.02% of what looks to have £855m of net assets - so a near 50% discount to NAV. With a takeover potential which would take it to 90% discount to NAV…… And that’s ignoring all of DGI9’s other assets.

On Arqiva alone, DGI9’s current share price makes no sense.

[craigso] 22/10/2024 10:57

Back to the "value" of Arqiva (and other assets) again?

The stock market is telling us that Arqiva is worth very little. That won't change until we get our money back from the sale of the other assets - at which point Mr. Market will indeed be forced to place a more precise value on Arqiva. (in combination with the Verne earn-out, unless a deal is done with Ardian to "buy out" the earn-out obligation for a lower cash amount)

But that won't really matter either because the aim is to find one (preferably more than one to have an auction) private equity / infrastructure fund bidder who believes the water meter story in 2026/2027 and is willing to pay DGI9 for a 48% stake in Arqiva.

And the value of the other assets is nothing more than what bidders are willing to pay in the next 6 months for them.

Just treat DGI9 like an ounce of gold. Not much intrinsic value, so what matters is the price that somebody else will pay you for it.

[duncansawalker] 22/10/2024 09:53

loglorry1
By mid Dec we shoud have as very good idea of how the water / sewage metering revenues will expand with the Ofwat report on water company capex for next period begining 2024...I think it's being published on the 12th...
For my money, the massive upside for strategic capex to minimize water loss, and the potential for 'dynamic pricing' of water (as per energy) in the context of Net Zero means it's likely to be a bonanza...
How much business Arqiva gets of the proposed 10M+ additional water meters proposed by the water companies, who knows. But they do seem well positioned, with apparently established, sucessful contracts for monitoring undertaken with a good proportion of the water / sewage companies....

[loglorry1] 22/10/2024 09:10

The best way to value DGI9 is to assume Arq is worth nothing and they walk away from the vendor finance which is non-recourse. Not knowing what is in the NAV for Arq (which I'm sure is nonzero) doesn't help much but I think we can build up the other parts fairly easily.

Having said that if DGI9 left their share of Arq as a listed entity within the current listing I think the market would ascribe some value to it. They really need to get the smart meter business growing properly to replace the TV broadcast revenues.

[cc2014] 22/10/2024 08:28

EM - for me the answer to your question is "what's the value of Arqiva". The rest we can all take a reasonable stab at as many have done on this Board.

And the answer to "what's the value of Arqiva" for me has a big range of uncertainty. I have one large unanswered question, which is what's the value of the BBC contract when it gets renewed. It sure won't be what it is now, but will it even get renewed in anything like it's present format. Will TV licensing at a ridiculous £170 a year still exist. And if it doesn't get renewed or is replaced with something with far less revenue to Arqiva what happens to the cost of debt for Arqiva.

I have little insight to my question which makes valuing Arqiva difficult, but what I do know is that DGI9's DCF probably implies the contract is renewed at the same price based on the growth assumptions for DGI9. IMHO that seems flawed. Others may see it otherwise.

[papy02] 21/10/2024 12:27

Tiger,
Personally, I suspect (with no evidence) the source could be the previous owner/ founder of Élio who will have good links to that company, and probably is known to the Irish Times reporters. It’s a possibility anyway, given that’s what was most detailed?

[tigerbythetail] 21/10/2024 10:50

I still think back to that suspiciously well-sourced article in the Irish Times about a month ago regarding the possible upcoming sales of Elio and Aqua.
It's not often you get that level of detail about a potential deal without it coming from the inside

[loglorry1] 21/10/2024 08:59

I think if there are indicative bids around the stated NAV (or no bids) then they'd be allowed to trade because they'd have the same info as the market.

[craigso] 21/10/2024 08:49

Interesting insider buy.

I suppose that there is more freedom for insiders to buy ahead of good news (instead of selling ahead of bad news). But I don't see how a Board member can sign off on NAV numbers - or even the target levels for the new investment manager bonuses - without having knowledge of the status of the various bid processes.

[loglorry1] 21/10/2024 06:33

Can't be a sale of assets soon if insiders allowed to buy but a positive nonethless.

[shareideas1] 21/10/2024 06:17

More insider buying... 1.35m shares...

[tigerbythetail] 19/10/2024 19:18

My own fingers and thumbs summary is:
Elio + Sea Edge clear the revolver debt. I'm hoping these sales are announced fairly soon.
Aqua + EMIC + the Verne earn out cover the current share price (and hopefully a bit more than that).
Leaving a "free" run at Arqiva, which is indebted both at company level and at DGI9 level (non-recourse!). It's a complex company to value, but I'm willing to gamble it is not worthless.

[williamcooper104] 19/10/2024 15:26

It's pretty simple now There's loads of debt on Acquivia and then on DGIs equity; that's hyper leveraged but all non-recourse Then there's the c£50m revolver that recourse - it will likely get cleared by the other assets being sold leaving the Acquivia equity plus the Verne earn out (we have no details as to how that's triggered; generally given data centre trends it's likely that there's a good chance it will get realised but there's also every chance our friends at TP screwed up the mechanism - that does often happen with earn out/overages, especially when the seller is distressed)

[eezymunny] 19/10/2024 15:06

Thanks for the earlier clarifications re shareholder loans, which of course makes a huge difference.

Has anyone published or posted a valuation broken down by subsidiary, with detailed justification including debt levels etc (rather than just a high level discussion of NAV)? I´ve spent too long looking at this and there are always more questions than answers...