Digital 9 Infrastructure Share Discussion Threads

[williamcooper104] 30/4/2024 10:18

The discount rate is 13.6% So three years of compounding at the discount rate > the market cap Appreciate it won't compound like that - but still

[cc2014] 30/4/2024 10:11

#2008 I agree the auditors will have been risk adverse but really the Board should have squared this off with the auditors before publishing the NAV.

It's basic stuff.

[tigerbythetail] 30/4/2024 09:14

Looking forwards from here, I'm hoping that DGI9 can get Aqua, EMIC, Sea Edge and Elio sold over the next 12 months.
In "official" NAV terms that should be something like 25p + 4p + 2p + 6p per share = 37p, minus 6p to pay off the RCF. I doubt they'll get all that, and there will be costs to sell, so let's say that results in about 25p per share, paid out in 18 months' time as a reduction of capital. Looking at it from today's share price, that makes for a decent enough return in itself.
That leaves the two bonus "wild cards" - the Verne earn-out, due in mid-2027, ("officially c. 3p NAV) and the value of Arqiva ("nominally" a whopping 39p NAV net of the VLN), due sometime later than that. To be honest, I've no idea how these investments will turn out in real life, but IMO it adds up to an attractive risk-return play from here.
I'm sorry, of course, for those who bought in at much higher levels. Triple Point and the board have let them down badly.

[marlint111] 30/4/2024 09:10

CC2014 - I do agree. However I also think that given the companies position the auditors are going to be pretty risk averse. As last thing they want is DGI going pop and everyone blaming/suing the auditors for not flagging up the risks.

So I imagine they have taken quite a "strict/risk averse" position on justifying valuations and on the earn out valuation. Likewise on the going concern qualification.

[cc2014] 30/4/2024 08:33

Not a good look when the unaudited NAV gets reduced by 5.5% by the auditors

I kind of feel some of that should have been in the price. Everyone knew the NAV was questionable and so it was to be expected that at some stage it would come down.

A reduction of 4.7p shows just how out of their depth the Board are.

[invisage] 30/4/2024 07:54

Once D9 pays off the £50m RCF they can distribute to shareholders.They said they are looking to sell assets in 2024 and have already started marketing them in April.Should mean more certainty in terms of when shareholders get paid and not have to wait for VLN to be paid off.....Less time to wait for shareholders distribution means higher share price as cash is worth more near term than the future.

[marlint111] 30/4/2024 07:50

Results look fine at a first glance.

- reduced valuation on Verne earnout due to more Conservative modelling.
- reduced valuation on Aquacomms due to higher discount rate
- still got a going concern qualifier in there which seems harsh to me given debt levels
- much lower accretion payment for Aeqiva confirmed

[duncansawalker] 29/4/2024 20:24

""I'm sure we would all be grateful and it would serve to build trust.""
Agreed! I certainly would. I cant see how it's not valued higher given the potential for a smart metering spin-off at a decent market priced EBITDA multiple plus a core business making 300M+ p.a albeit in a declining market.

[bagpuss67] 29/4/2024 19:51

Keith. I'm afraid to say your analysis doesn't sound particularly financially literate.

[tigerbythetail] 29/4/2024 19:24

Perhaps it's time for the board of DGI9 to publish the detailed reasoning behind their valuation of Arqiva?
Net of the VLN, DGI9 are claiming that their 48% stake in Arqiva is worth £340m. Educate us all how you came to this figure, please!
I'm sure we would all be grateful and it would serve to build trust.

[steve36] 29/4/2024 19:14

It is forgivable to be wrong but less so to be rude. If you look at Arqiva Ltd's balance sheet, it may have £3bn of reserves but it has no cash, just £4bn in receivables from other group companies. You do need to look at the consolidated group accounts I'm afraid.

[keith95] 29/4/2024 19:00

"You need to look at the consolidated group sccounts"

Errr ok .. so if Arqiva Ltd. stuffs its operating profits into reserves, and Arqiva Group Ltd issues a loan note to shareholders ... for the oeprating profits stuffed into reserves ..... as a tax advantage for private businesses and common practice ....

.... my thoughts, are that one needs to dig a little deeper into the consolidated accounts of the holding company and subsidiaries to see if the debt is covered, and to find out where those operating profits are held.

But that's me ... and I don't a flying fig what some random poster blathers on about as in the above uninformative contribution to a very old discussion.

[marlint111] 29/4/2024 17:10

No you can't look at just the reserves in one of the opcos as they are balanced out by liabilities elsewhere. You need to look at the consolidated group sccounts

[keith95] 29/4/2024 16:40

"So it looks to me like the company is being run to pay down debt ."

Go check the assets of Arqiva Limited as opposed to the holding company.



Arqiva Limited squirrels away profits by transferring operating profit each year to reserves - currently £3.3 BILLION in total assets are held in Arqiva Ltd. reserves according to June 2023 filings - from which Arqiva GROUP Ltd. as the holding company issues a loan note to equity holders.

Scroll above - because I'm repeating.

DGI9 hold 48% of Arqiva Group equity as shareholders - but they also own 52% of the financial interest in the shareholder loans.

So the challenge is to restructure Arqiva to get access to 52% of the financial interest in Arqiva ... presumably by IPO.

Arqiva goes to market DGI9 as a 48% shareholder will be looking at up to £1 bn return IMO.

[williamcooper104] 29/4/2024 15:51

Don't forget that if you discount for 5 years you are also going to get cash generated by the assets in that 5 year period Plus while it could take 5 years to finish the wind up there will be return of capital along the way such that a c3 year average holding period is probably a reasonable assumption

[alan pt] 29/4/2024 15:45

The telecoms sale financed the debt paydown
hxxps://www.arqiva.com/news-views/news/arqiva-telecoms-division-sale-cellnex

[tigerbythetail] 29/4/2024 15:42

Hi CC2014 - thanks for your reply.
A market is really a never-ending argument over the price of something, and yes, I wanted to hear the other side's point of view. Thanks for sharing.
I still think the pessimism here is badly overdone. But that's only my own point of view.

[marlint111] 29/4/2024 15:34

I've been doing a bit more homework into Arqiva to work out where all the cash they are meant to generate has been going.

My conclusion- is it has all been used to pay down borrowings. If you go back to 2018 for example- the total borrowings (excluding shareholder loan notes which we ignore) are 2.975bn . In latest financials, we are down to 1.56bn.

So it looks to me like the company is being run to pay down debt . This matches up if you look at where they report the debt covenants. Back in Jun 2018 they were running at net debt/ebitda = 4.42 , and cashflow to interest of 2.78,

June 23, this was at 2.97 and 5.56 respectively.

So all the excess cashflow is being used to pay down Arqiva's debts, rather than distribute to shareholders.

[cc2014] 29/4/2024 15:29

TBTT - You asked for the bear case so that's what I've given you.

Whether you agree with it is up to you.

And yes Arqiva can be worth less than zero if it ends up running significant losses which DGI9 choose to support. But whether Arqiva can be worth less than zero is a distraction from the main argument.


We know the market has decided DGI9 is currently worth 22p. I think part of the issue is that if the opportunity cost is 15% (and that seems reasonable to me given the risk involved here) and it takes 5 years to crystallise a return to shareholders then that comes to 22*1.15^5 = 44p a share.

So, sure you've doubled your money but the results doesn't appear as fantastic as it looks. Of course you need to reprofile for partial returns but I trust you get my drift.

[tigerbythetail] 29/4/2024 15:16

How can Arqiva be worth "less than zero", given the VLN is non-recourse?
Even if you do place zero value on Arqiva, and you assume the Verne earn-out yields nothing, and you discount Aqua, EMIC, Sea Edge, and Elio heavily, I still get more than 22p of value. That's why I asked the question I asked!
The RCF now is only £53m, so I don't see how that threatens the existence of the company either. And they have £12m of cash to cover running costs.
I get that DGI9 have screwed up utterly in the past, and that they have triggered many of their institutional shareholders into selling out (exit from FTSE 250, limited liquidity, poor performance, threat of delisting etc). And I also worry about the board being spendthrift. But, surely, the current extreme mark-down reeks of irrational pessimism, no?

[williamcooper104] 29/4/2024 15:06

The VLN is non recourse Would have thought they'd be able to get a going concern given the size of the revolver now

[cc2014] 29/4/2024 14:46

Bear base is Arqiva is worth less than zero (noting that Arqiva is broadly ringfenced apart from the VLN)

Aqua probably isn't worth NAV either but that one's a bit easier as I don't think even a perma bear would suggest it's worth less than 75% of NAV.


Oh and then there's the going concern statement and risk the accounts don't get published tomorrow. At least that one will crystallise tomorrow and surely surely surely if the accounts were not going to get published tomorrow the Board would have said so. Surely!


Edit: I don't personally think Arqiva is worth zero but I do think it's worth far less than the average value I see punted on this Board by quite a bit. Aqua I'd run with 80% of NAV. But, what actually concerns me the ability of the Board to spend money on advisers. That's going to be a significant drag along with time to crystallise the assets. Along with opportunity cost of investment elsewhere.

[spectoacc] 29/4/2024 14:44

Timescale. Costs that are getting ripped out. Uncertain valuation of what's left.

But as a holder, I think it's worth far more :)

[tigerbythetail] 29/4/2024 14:36

Does anybody fancy having a crack at expressing the bear case here?
I really can't understand the current low share price now the Verne sale has completed, despite all the mistakes the manager and board have made in the past.
But I'd read with interest the bear case. Why is DGI9 worth 22p per share? Or less?

[wskill] 29/4/2024 10:01

The results are due before the end of April today or tomorrow .I do hope that have not awarded themselves bonuses for losing so much money in such a short time I suppose there should be a prize for that.