Digital 9 Infrastructure Share Discussion Threads

[stemis] 18/4/2024 10:34

This is going to need some sort of catalyst to move the share price. The market isn't prepared to take the directors NAV at face value so it's going to take a sale of one of the investments.

[wskill] 18/4/2024 09:34

Another one bites the dust Hipgnosis sold for a song pardon the pun ,pity that the UK market is unable to value this sort of company I include DGI9 in this category .
But will add a few more here from the sale of my holding in SONG will wait for a few weeks in case another bidder emerges .

[hindsight] 10/4/2024 20:44

Good point duncan

The Acquisition values SMS at an EV / EBITDA multiple of 20.0x (calculated based on LTM Pre-exceptional EBITDA of GBP71 million as of June 2023).

[duncansawalker] 10/4/2024 20:05

Agree to the above Tiger.
Although perhaps some clarity to market value in what KKR paid for SMS as a benchmark to Arqiva's smart metering offering. 12 x index linked revenues would indicate a £~2BN market valution. Some strong y.o.y performance in tnhis section of the business in the 2024 accounts wouldn't go amiss....

[tigerbythetail] 10/4/2024 17:01

In the end I'm none the wiser about the true value and prospects of Arqiva.
I accept that the towers have value outside TV broadcasting, but how much? And for how long will TV broadcasting continue? As for smart meter monitoring, is that really more than a sideline?
And then Arqiva is leveraged so highly, and in turn Arqiva's 48% ownership of it is leveraged by the presence of the VLNs, that small upturns and downturns in Arqiva's profitability will lead to hugely magnified variations in the value of DGI9's stake in it.
I'm confident enough in the value of DGI9's other assets that I'm happy to be invested here at the current share price. I even think there will likely be value in the Verne earn-out. But Arqiva, to be honest, I haven't got a clue. Hopefully the vulture kangaroo can unload their 25% of Arqiva soon; that would put a firm value on DGI9's own stake.

[solarno lopez] 10/4/2024 14:45

The retained earning maybe there but so is a huge chunk of borrowing !

[duncansawalker] 10/4/2024 14:44

I'm suddely reminded by the expression: A little bit of knowledge is a dangerous thing.

[stemis] 10/4/2024 14:19

If you want to look at the Group accounts, they are here

[duncansawalker] 10/4/2024 13:40

ah. Mnay thanks people. Much better understood now.

[williamcooper104] 10/4/2024 12:48

Retained earnings aren't cash It's the balance sheet impact of culmluative P&L gains and losses Start out by injecting £100 equity into a company, invest it and then make £10 but decide your assets aren't worth but only £50 so take a net loss to P&L of £40 That £40 then bets against your share capital of £100 to get the bottom part of the balance sheet to £60 which equals the top part being assets of £50 and cash (assuming all of the £10 booked has been recieved in cash) of £10 Which balances

[steve36] 10/4/2024 12:33

Marlin is right - you need to look at the consolidated group. Arquiva Ltd might have £3.2bn of retained earnings but the bulk of this is money owed by other group entities (£4.1bn note 16)

[marlint111] 10/4/2024 12:26

You'll also see in the Arqiva ltd numbers that just looking at retained earnings doesn't tell you if there's any cash to pay out.

Retained earnings are part of the equity section of the balance sheet- and do correspond to historic profits.

Assets - Liabilities = Equity

To see whether there's cash to pay out- you need to look into the assets part of the balance sheet. You'll see nearly all of Arqiva assets are receivables from other group entities- they only hold about £23m of cash at the balance sheet date.

[marlint111] 10/4/2024 12:22

This is looking at the subsidiary though- if the borrowings etc sit at group level or within a different subsidiary then its a bit pointless looking at just one of the companies.

Need to look at the consolidated group numbers.

[marlint111] 10/4/2024 11:48

Duncan- where are you getting these numbers from? In the group financial statements I see accumulated losses of -5.8bn (obviously a lot of this down to shareholders loans)

[duncansawalker] 10/4/2024 11:21

This is still confusing the hell out of me.
if 'retained earnings'of £3.2BN isnt cash, what is it?
if p60 - ""The profit for the year of £342.0m (2022: profit of £246.8m) was transferred to reserves"" what does that mean? Cash profit or not? And are other oputgoings paid for out of reserves.
Apoloigies for the idiot questions!

[williamcooper104] 10/4/2024 10:58

They don'tBrookfield report BIP and BEP in a consolidated fashion, and then focus on FFO (which ignores deprecation - fine for real estate but not for fixed life infra projects) However it does get their share price to usually c2x their NAV

[williamcooper104] 10/4/2024 10:46

Yep auditors check that you've used a recognised valuation methodology and haven't obviously made a calculation error At best they may sense check the discount rates to market and gilts But they're very poorly placed to really value the projected cashflowsOf course quite a few infra trusts have recently sold assets above their carrying value; but then those trusts weren't run by our friends at Tripple Point

[williamcooper104] 10/4/2024 10:42

It's valued at c6.7x EBITDA to EVFor an infra investment that's a low multiple But the broadcast income will fall away eventually suggesting the multiple isn't so cheap - you really need to see a DCF to get an idea on value as opposed to a simple multiple Given when it was bought and the muppets who bought it my guess is that current value is considerably less than book - but equally likely there still is material value

[loglorry1] 10/4/2024 10:15

"So the last valuation of Arqiva is correct then £340m for DGI9s holding."

Well that's the million dollar question. So many moving parts at Arq it could be worth zero or £340m. The valuation was "independent" but its driven from a business plan that TP provide so garbage in garbage out I suppose.

[jaknife] 10/4/2024 10:13

I don't believe that DGI9 produce consolidated accounts. As an investment trust they report everything as an investment even if they own greater than 50% and hence should obviously consolidate on an IFRS basis.

[wskill] 10/4/2024 10:12

So the last valuation of Arqiva is correct then £340m for DGI9s holding .

[loglorry1] 10/4/2024 10:12

The best simple way to view Arq is that it makes about £200m in free cash flow before paying its real interest and the interest on the shareholder loans and before the daft swap they got themselves into. The swap rate is determined at end of March so since inflation is down its going to be much less c3.7% vs the 13.5% it was at the last date when they paid £176m. So I guess it will cost them c£50m this time around.

They also pay interest on net debt (stripping out the shareholder loans) but at a very rough guess once things normalise, and if they don't have any massive cost pressures Arq could make c£20-50m for DGI going forwards.

"As disclosed in June 2023, Arqiva implemented a collar on its inflation-linked swaps, which applies a cap and floor to future accretion payments, limiting downside cash flow exposure for the business. For its financial year ending June 2023, Arqiva paid £147 million in accretion (equating to c.£76 million pro-rated for D9's 51.76% economic interest in Arqiva). This was based on a 13.5% Retail Price Index ("RPI") inflation rate in March 2023. As a result of the collar, accretion payments going forwards are effectively limited. For example, net of the collar, the accretion payment for the year to June 2024 is effectively capped at c.£75 million (c.£39m pro-rated for D9's ownership). This maximum payment will only be payable if RPI in March 2024 exceeds the collar's cap of 6.0%. If RPI is lower, the accretion payment will be proportionally lower as well, down to an RPI floor of 2.5%. If the January 2024 RPI levels of 4.9% continue to March 2024, the June 2024 accretion payment will be c.£60 million (c.£31 million pro-rated for D9's ownership). The swaps expire in April 2027, and, for the avoidance of doubt, the accretion payments are made by Arqiva out of its operational cash flows."

[cc2014] 10/4/2024 10:06

First I would start with DGI9 own 48% of Arqiva Group Ltd so it's their accounts that are important. Any cash is going to get consolidated into the group accounts



The consolidated group accounts show they have cash of £43.5m on page 91 (which is basically why they can't pay the interest on the shareholder loans as their day to day working capital is stretched)

[duncansawalker] 10/4/2024 09:39

Sure thing Tiger:

p69, 'statement of financial position'

Unsure on subsiduaries other cash positions....as I say, have some financial statement common sense, defo not an accountant!
Very happy for people to comment and tear into this. My non-expert 'man in bubble' view is that Arqiva is a goldmine to some corporate raider and if it has to be floated to extract that value, it could be done on the cheap and still be a goldmine.