Digital 9 Infrastructure Share Discussion Threads

[redhorse2020] 07/3/2024 17:13

Can't accrued interest on the VLN be settled from any future distribution by Arqiva itself rather than from the sale of other D9 assets? I'd have thought that prioritising distributions to shareholders from any future sales would be better aligned with the new objective of the fund if possible.

[williamcooper104] 07/3/2024 16:35

With Tripple point in charge can't rule it out alas

[loglorry1] 07/3/2024 16:32

@skinny - I have no clue but I think as long as V completes people won't loose money buying here. The upside is very hard to work out but could be 2-3x (from here) if we are lucky. I suspect they'll come out with a NAV a bit higher, than yours, but the market will discount it quite a bit.

[skinnypope] 07/3/2024 16:24

Thanks again to everyone replying by the way, good to have some traffic on here.

The first half of my post seems to have generated the replies, which is great, but it's mostly stuff in the rear view mirror now Verne is "sold".

I am still interested in peoples views on the second half of my original post i.e. what the "new" post Verne NAV might be, and also the distribution strategy post the other sales.

For good order, my view is the NAV will be 66p [I am prepared to look foolish on this when the valuation report is out].

The return strategy should be to pay off the accrued interest on the VLN [so D9 can take distributions from Arqiva until 2026] and return the balance to shareholders via a capital return of 10p at year end.

Thoughts please!

[skinnypope] 07/3/2024 16:06

Thanks loglorry - the "interest costs" must be the Verne + Arqiva debt number, and the "D9 Financing costs" the RCF. Appreciate the pointer here. Also, re your last post, Arqiva did note a revenue uptick from RPI linked contracts, but offset by higher costs elsewhere.

AlanPT, yes it's worth clarifying the inflation swaps are in Arqiva [presumably as a hedge for their RPI linked income?] as is the collar, but it is a line item in the EBITDA to OCF bridge i.e. the swaps are eating Arqiva's PBT and therefore group cashflow is suffering. D9's cash is dwindling as a consequence with capex presumably being funded from group cash due to the OCF shortfall in the entities?

Does anyone else have a good model of the group cash burn of £10m per month besides my wild guesswork?

rambutan2 - would be great if you could confirm that annual reset [an annual RPI reset is not common on these types of swaps, but it is possible!] as it will make a difference to H2 [Arqiva!] cashflow.

Lastly, to reiterate (!) I mention administration as a real risk that the share price was pricing in. Yes there may be other ways to unwind the company, but to discount administration as impossible isn't correct!

[loglorry1] 07/3/2024 14:52

Arquiva revenue is strongly linked to RPI too so there is (or should be at some point) a big offset. I expect there is some lag tho.

[rambutan2] 07/3/2024 14:16

I’m sure I remember seeing/hearing that Arqiva’s RPI linked debt was set annually based on the March or April figure?

[alan pt] 07/3/2024 14:14

also note that most of the loans will be non-recourse, so they can't force the trust into administration, only individual entities

Arqiva is responsible for the accretion payments, not DGI9. Arqiva entered into the collar agreement, not DGI9. DGI9 could just walk away if Arqiva went into administration

RCF is DGI9, but even with a likely haircut to NAV it's still significantly less than the value of assets. This is why a rights issue (although wildly unpopular) would be a more likely scenario than administration. Some REITs have done this in the past when in serious trouble

[loglorry1] 07/3/2024 13:50

The cost of the RCF is Its SONIA +3.25-3.75%

I think those £26.3m of interest cost also includes the interest on the Natixis Verne Icelandic facility.

[skinnypope] 07/3/2024 13:31

Hello again all, nice to have generated some good feedback, thanks everyone.

Firstly, to clarify re OB. I agree that he does a good job pulling apart the complicated D9 balance sheet, so worth a read for that. However my PS was more to exercise caution on the projections he has, which he says are "conservative", but to me look quite aggressive. D9's portfolio EBITDA looks to have shrunk in 2023 [£205m down to £199m], so forecasting much/any growth from here is quite odd. Stripping out Verne, the drop is larger [£195m down to £182m]. I also note that he hasn't spoken much about the high cash burn in D9 [although I may have missed it].

Loglorry - happy to be corrected on the RCF if you know what the correct rate is, and how you know it? I used page 12 of the interims "Interest Costs" at £26.3m and the average of the opening and closing RCF draw at £343m, which backs out a rate of 15.5%.

Re administration, my point is that the possibility of this had increased exponentially of late. Lending banks are not sympathetic to small mis-managed companies like D9, the risk weight on the loans will be high and a chance to get the money back would be taken in a heartbeat. Administrators fees would ultimately be paid by D9 and those of us down the creditor food chain, not the banks!

Lastly I have had a stab at the inflation accretion payments. D9 paid £58.5m in H1 2023 - average UK RPI over the period was 16.6% implying a swap notional of ~£700m. This tallies to the collared maximum D9 have stated at ~£40m per annum (with RPI at 6%). If this is right [again, happy to be corrected] H2 payments should have dropped to £26m [£4.3m per month] with average RPI at 7.4%, and for this year we are looking at around £2.3m per month, using 4% RPI.

I *think* this validates my £10m per month cash burn number in H2 - £4.3m inflation accretion, £4.4m RCF costs being the bulk. The good news is big drop in those numbers from here on.

[loglorry1] 07/3/2024 12:36

OB recently came out with some absolute rubbish about how EBITDA would go up massively at Arquiva on a new contract they had to roll out smart meters. He got the numbers completely wrong making a daft assumption on profits from a one off roll out of low margin smart meters. There are many other examples. I think he's on the right lines but is just way too bullish on many things. His analysis of DEC is also very wrong IMHO.

[bagpuss67] 07/3/2024 12:08

A moratorium or restructuring plan wound have also been more likely than admin perhaps. Anyway as you say hopefully that risk has now subsided.

I'd be intersted in hearing your challenges to OBs numbers?

[williamcooper104] 07/3/2024 11:29

Admin is very unlikely Banks aren't going to appoint an administrator at great cost to do what management can do by winding down the trust What's more likely is that the banks would force a quicker pace of disposal A distressed rights issue was more concerning; but equally can't see that happening as institutional shareholders all know other shareholders feel way they do so won't fear dilution

[tim000] 07/3/2024 11:12

Thanks, good post. Completion of the Verne sale should act as a trigger for a steady recovery of the share price, once liquidity concerns are fully addressed. I still think the Oak Bloke provides useful background info!

[loglorry1] 07/3/2024 11:10

Good post. Agree on Oak Bloke - dangerous fool with a blog.

I don't think the cost of the RCF is 15% btw.

[riverman77] 07/3/2024 09:51

The 60p figure is a very rough guide - actual returns could be anywhere from 50p to 100p, but impossible to say without detailed knowledge of the underlying companies and market conditions. Either way, looks a pretty good investment at the current share price.

[tim000] 07/3/2024 06:50

cyberbub, if you’re not familiar with “The Oak Bloke”, you should look at his research on the company. Bare in mind however that he’s generally overly bullish on his stock picks, and likes high risk/high reward stocks - such as SED which has just gone into administration. Investors don’t like wind-up stocks, they’re not growth stocks by definition and the process can take many years, but that can result in share prices being excessively discounted. DGI9 does look very cheap, I bought in yesterday after monitoring for a while.

[cyberbub] 06/3/2024 21:45

Thanks Riverman. So if your share price target is 60p you must think there is 70p to return eventually? And so if they sell 10p/share worth of assets, shareholders get 10p cash and the share price drops by 10p? And sell another say 20p/share of assets, get 20p cash, share price drops by 20p... until the share price reaches zero or thereabouts, and possibly becomes a cash shell?

Ultimately then it's just a bet on what you calculate the assets returnable will amount to. If you think 70p then buying at 25p is obviously a no brainer, if you're willing to wait a couple of years to almost treble your money?

[riverman77] 06/3/2024 21:36

I see 30p as more of a short term target once the market fully digests today's news. Longer term, shareholders should get back whatever they are able to sell the assets for. If you believe the NAV then this could ultimately be around 85p, although this would obviously take quite a while. I'd probably be more cautious and be very pleased with 60p.

[cyberbub] 06/3/2024 21:22

Interesting situation here, just looking in after a tip. I've not been involved in a wind-down situation before. Will it not be just like a dividend situation though, where a company paying (say) 10p divi from ongoing profits will drop by 10p on the ex-divi date and then gradually recover... but in the case of a company that will have no ongoing profits after it has divested its assets, surely the share price will essentially decline to zero (or the value of any residual cash)? So if some posters are saying that the share price here will rise to "over 30p" then that implies that they must be expecting 40p-odd in cash (£350m-odd) to eventually be returned to shareholders, because the shares will be worthless afterwards, and there is still some risk and time delay, and some operating costs remaining, even when the company has announced its wind-down strategy?

Any views appreciated.

[invisage] 06/3/2024 17:05

Where is Ghhghh these days? probably sold, long gone....

[spectoacc] 06/3/2024 14:22

Edited :))

[feddie] 06/3/2024 14:19

Is there a prize for who misspells Arqiva in the most creative way?

[williamcooper104] 06/3/2024 13:51

Yep CORD have some data as does SGRO But there's no specialist data centre reit