Digital 9 Infrastructure Share Discussion Threads

[williamcooper104] 09/4/2024 22:24

It's more basic To pay a divided you need distributable reserves whereas to pay interest or repay a loan you just need the cash so it's easier to get money out if most of it is a shareholder loan That and often interest on shareholder loans is tax deductible so if you are a shareholder that doesn't pay tax then it's better to have interest that gets a tax deduction and upon which you aren't taxed than to take out a lower post corp tax dividend

[duncansawalker] 09/4/2024 22:12

Does a restructure necessitate unanimity amongst the shareholders?!
I'd have imagined that Dgi9 combined with Macquarie would be enough to force the board's hand. Irrespective of IPO pricing there seems to be some much value to be gained I simply don't understand why it can't be pushed through and I want to know why!

[cc2014] 09/4/2024 21:57

These shareholder notes are doing my head in.

There is a post back from Donald that says the Board says to ignore them as if they are written off it makes no difference as the change in debt will be cancelled by the change in equity.

Only if they serve no purpose why do they exist? Or put another way I don't think they can just be ignored.

My first instinct is that they are a tax deferral device. So, if Arqiva wrote off £1bn of debt that would create a £250m corporation tax bill. However, I cannot be sure but looking at Arqiva's accounts I judge that's not how their corporation tax bill is working so I assume there is some rule with HRMC which prevents that. So, I've mostly rejected this thought process.

My second instinct is that it's an earnout avoidance device. Perhaps related to the BBC contract. But that seems a stretch too, so I've mostly rejected that too.

Then the 4 shareholders none of which has control. It would take all four in agreement to write them off and I can't see that happening. If you are one of the smaller shareholders why would you.

DGI9 seems hard to restructure due to this and Macquariane failed to IPO Arqiva in around 2015 because they couldn't get the value they wanted. 9 years on they are still trying to sell their remaining stake.

[williamcooper104] 09/4/2024 21:43

Acquivas other shareholders will be IRR driven so they will take divis out when can There's a lot of capex to fund so so long as that's the case divis won't be flowing - but much of that capex should be accretive DGI9 cut the divi not so much because it didn't have the earnings but because it didn't have the cash So at least a reasonable part of what we would be getting as a divi should be working on increasing NAV

[duncansawalker] 09/4/2024 21:31

I am not an accountant, and I welcome all constructive comments and ritual mickey taking. Arqiva, as far as I understand it, isnt paying distributions, and is squirreling them away as 'retained earnings' in it's subsiduary. With no controlling interest, the board can do this with impunity. In a wholly owned subsiduary report you can see that there is £3.6BN, and probably nearly £4BN by the time we see June 2024 accounts. In a liquidation scenario, Arqiva owes £1.5Bn of debt, to be repaid first. Its shareholder notes - next to be paid - are liabilities to it's own shareholders (NOT external banks), so of no relevance, barring that DGi9 owns 52% of them. So: logically, DGi9's shareholding value begins at ~£1.25BN, with then the assets of the business and the future cash streams from it's operations on top IF it can take control of the business and force a corporate restructure or an IPO.
Really interested to hear what you make of this.

[stemis] 08/4/2024 16:29

Excluding shareholder loans, Arqiva net debt is around £1.5bn

Ebitda is about £330m and DGI9 value Arqiva at £709m in total. So EV of £2.2bn / ebitda of £330m gives a valuation of 6.7 x ebitda, which isn't that aggresive surely...

[tigerbythetail] 08/4/2024 15:23

Here's a post from the LSE board:
"I'm hoping for a lot more than this given there is £3.6BN so £2+/ DGi9 share of retained earnings in Arqiva?
Never mind the fact that Arqiva is a going concern that is throwing off £300M+ in cash per annum, on £800m of net assets!
Seizing effective control of Arqiva pre-float should be the no 1 priority of the board.
or have I misunderstood this?!"
To be frank, I'm having trouble understanding Arqiva properly. But surely a post like this is wrong, isn't it? Can anybody advise on Arqiva's net debt / net cash position?

[craigso] 06/4/2024 13:14

Downside is indeed present, simply from those throwing in the towel.

But it's not hard to get the current share price from any reasonable sale of the undersea cable businesses, leaving the earn-out + Arqiva as all upside.

IMO, the latest mistake (of many) was thinking that the market would treat the earn-out as "selling Verne for NAV" instead of what it was perceived as - which is the most attractive asset not being worth anywhere near its NAV, so what about everything else...

[spectoacc] 05/4/2024 13:01

Difficultly with the "hard to see much downside from here" argument is that the majority of us had it higher - 30p, in my case :)

[stemis] 05/4/2024 10:31

Hard to see much downside in this from here, surely?

Even if you ignore the Verne earn out totally, the current market cap of £195m and RCF of £80m are covered by 80% of the value of Arqiva. Looking at the accounts of Arqiva, its valuation in the books of DGI9 doesn't look ambitious. Valued at about 6-7 x ebitda. That means anything from the earn out (max 12p a share) and the other investments (40p a share) are cream.

[wskill] 04/4/2024 11:08

Added a few more today making DGI9 a near 10% holding in portfolio average price now with todays purchase 24p mainly on DPs report of his talk with directors,46p plus will do nicely but think around 65p plus should be achievable.

[skinnypope] 04/4/2024 09:34

Just adding my thanks to DP for taking the time to speak to D9 and posting here.

Although there isn't much breaking news from D9, except that Macquarie are looking to exit Arqiva perhaps, it is a very useful pulse check.

I am struck that they really need better Investor Relations as much as anything. A tour of the market's investors and wealth managers with Liberum could help. From my professional investing days I can state with full conviction that an issuer/company that came to see me and explain their business was always one that got more attention.

The dividend suspension, dropping out of the index and now the threat of delisting are all red flags to wealth managers. D9 need to shore up these holders, or even better, find some new ones.

[Side note: I think someone called me the biggest bear on here after my last post - quite a sobriquet given I had forecast a 100% upside to the share price :-)

I think it's important to stress test my investments and have bear/base/bull cases on all my holdings. The 46p target was my bear case.

Full disclosure - I am long at blended low 30s price, D9 is now the largest holding (of 48 investments) in my portfolio]

[loglorry1] 04/4/2024 09:02

I'm guessing GS provided some of the legal advice too or at least took a cut of it. I realise they broke down the costs to make them sound more palatable and argued it was multi-country etc. but at the end of the day as a % of remaining market cap there was huge leakage and that's what counts to equity holders during a wind up.

I'm not really surprised. The BoD and TP won't take any risk by cutting corners or saving a few £m here and there. There is no upside for them in so doing.

I'm basically just having a moan!

Where is that VAT money?

[gooseman1979] 04/4/2024 08:25

Log,

Where do you get 8% GS commission? The 28th March update stated that fees for financial advice were £5.8 million, so <2%. Other costs were legal - £5.8 million; vendor DD, tax, other advice - £2.8 million; financing arrangement for accordion facility - £1.0 million; contingency - £1.6 million (has not yet been utilised)

I'm not arguing that the overall costs were not high, but it's not the case that this all went to GS

[loglorry1] 04/4/2024 08:16

Thanks DP. Good luck with reforming the industry. I doubt very much TP could be successfully sued but if you want to try and have the resources knock yourself out.

As you say going forwards we need asset buyers and I'm not sure BoD appointments or dismissals makes a lot of difference. If the assets are as good as they say they'll get sold. I think the BoD have heard the message on excessive advisor costs but for all we know the bigger holders might want them.

[speedsgh] 04/4/2024 08:09

Thanks for all your efforts DP. Was there any discussion of the extortionate adviser fees?

[donald pond] 04/4/2024 07:52

Well log, I would like greater visibility on whether any legal action is open against the manager. There are lessons to be learned about how investment trusts are designed. The manager setting it up with a long initial contract period and a fee linked to NAV is common practice but shouldn't be. But the struggle is to identify what any board can do now that will get the share price back up. The answer is simply that we need buyers.

[loglorry1] 04/4/2024 07:22

Are you no longer on the war path to try to get rid of them DP ?

[gonsan] 03/4/2024 23:49

Thank you Donald you are a legend.
Macquire wants to sell Arqiva, I wonder why…
They don’t want a self managed fund in wind down. They prefer to pay millions upon millions to several firms…
“Shareholders wanted dividends” well… now we don’t have dividends and neither exciting growth assets… as we had to sell them in a hurry to rescue us from near death experience.
They are frustrated the market does not recognise the price of the assets.. which institutional investors can justify investing on what is left? And the vultures that know how to extract value from carrion are circling waiting for the need to sell the rest at knock down prices.
I might be bitter and unfair. The first for sure, the second I think not

[donald pond] 03/4/2024 21:36

Yes fist, though they caveated it by saying it is public knowledge. I suspect when one institution is trying to sell a private asset everyone in the city knows and us plebs don't have a clue

[fisternator] 03/4/2024 20:36

Thank you for taking the time Donald. Was it the Bod that said Macquarie are currently looking to sell their 25% stake?

[bagpuss67] 03/4/2024 16:34

Fair point. Thanks for the post Donald. Did you ask why they they were incurring such heavy and seemingly unnecessary advisor fees?

[loglorry1] 03/4/2024 16:30

I bet Macquarie aren't paying Goldman 8% commission to sell their share!

[wskill] 03/4/2024 16:05

Thanks for that DP will pick up a few more on that update.