Digital 9 Infrastructure Share Discussion Threads

[tigerbythetail] 01/10/2024 09:14

Yes, for my investment thesis it is crucial that the Arqiva VLN is non-recourse.
In a nutshell:
Elio + Sea-Edge pay off the RCF
Aqua + Verne earn-out cover the current share price, maybe a bit more
Leaving a "free hit" on Arqiva, which may well come good with water meters and extended terrestrial TV. And if it does go sour, the VLN is non-recourse, so it just gets handed back to the original seller.
Please post if you find a basic flaw in this (very crude and approximate) argument!

[loglorry1] 01/10/2024 09:06

@hpcg when DGI9 bought Arquiva from a Canadian pensions company they paid for it using a non-recourse Vendor Loan Note. So they paid some and in effect promised to pay the rest later. The debt isn't shared it is between DGI9 and the seller of Arq to DGI9. They can default on it if they don't think there is value in Arq and it is non-recourse on their other assets. That I think is the correct situation.

[hpcg] 01/10/2024 08:50

I don't understand some of the analysis on Arquiva, ignoring for now the structure of the DGI9 holding in it. The external debt is £1482, including a finance lease. What don't I understand about the Shareholder Loan notes and the accrued interest on those notes that is pertinent to the valuation?

Are these debts to shareholders not owned in part to DGI9? Indeed with a 48% equity ownership and 51.76% economic ownership does this not imply a greater than equity share of the loan notes? In which case isn't this just structured equity?

[tigerbythetail] 01/10/2024 08:50

I do take the point that the NAV / perceived value of a holding geared as highly as Arqiva (both by debt at Arqiva level and at DGI9 level via the VLN) is highly volatile. (I.e. can quickly go up in smoke!)
All in all I'd be more comfortable with amore value being ascribed to Aqua / EMIC and less to Arqiva - for this reason and also because the Aqua / EMIC value can be realised sooner.
Things here will look a whole lot better if the board can conclude the Elio sale, at least. Elio + Sea-Edge sales should be enough to do away with the RCF, which would remove a whole level of fear, uncertainty and doubt here.

[stemis] 01/10/2024 08:32

When it all comes out, it'll be interesting to see at what the board are valuing Arqiva. If I use an ebitda multiple of EV of 6 or a debt free earnings multiple of 12 I get about 25p/share. Hard to see they are valuing it at as much as that.

(whether 6 and 12 are reasonable is, of course, a matter of opinion)

[wshak] 01/10/2024 08:13

Even on a 3 year timeframe, a 100% return from here pays well.

Added to that, as we've seen with API recently, someone might finally come in and put Dgi9 out of its misery.

The proportion of costs that are being racked up is unreal.

[marlint111] 01/10/2024 08:10

@erstwhile - where are you getting your EBITDA - maintenance capex numbers from? In the Arqiva report they show "operating cashflow after capital and financial investment activities at 244m this year (232m last year). Last year's EBITDAs was 310m (340m prior year)

[craigso] 01/10/2024 08:09

Geez. I was hoping the share price would settle between the 22-23p before the NAV reduction and the 17-18p it was trading at pre-results. I guess there is an overhang of sellers who wanted something more newsworthy in the HY results.

You don't need to be a McKinsey or Goldman Sachs partner to know the way forward here. Sell the non-core Elio and SeaEdge and get DGI Holdco debt-free. (that would hopefully get everybody to stop moaning about "high gearing") Sell Aqua / EMIC for a decent price or find a buyer for the whole company (Aqua/EMIC/Arqiva/Verne) at 40+p per share.

re. Arqiva. Nobody in their right minds would repay (early) a PIK, junior debt instrument costing just 6-7%. But that VLN probably has change of control provisions, so would have to be paid off in order for DGI9 to sell the Arqiva shares. So the sensible thing is to let Arqiva execute its pivot to water metering / deleveraging, and provide some cover for the Verne earn-out to come good.

[williamcooper104] 01/10/2024 07:59

The value increase in the earn out could just be the passage of time/unwind of the discount

[marlint111] 01/10/2024 07:58

WShak - agreed. The big questions outstanding for me now are timescales though.

Firstly for the RCF refinancing due early 2025. I'm not too worried about that - I think it should hopefully be paid off, or close enough that it doesn't cause an existential issue.

Secondly- how long is it going to take to start returning funds. Only way this happens is a sale of AquaComms (Elio/SeaEdge too small- will only clear RCF).

And after AquaComms goes then you are going to have a rump with Arqiva and the Verne earn out. It feels like no one quite knows how to value Arqiva - and the process for selling it is going to be slow.

[wshak] 01/10/2024 07:50

I bought more late yesterday at 16.36p, which was a gamble that they would produce results, and they would not be more horrific than they were.

Having read the results, the sheer horror of what has transpired regarding debt, NAV write-downs, costs etc. has taken pessimism amongst investors to extremes - understandably.

We do have a new Board, though, and I think that is significant.

We must be a long way down the line in terms of selling Aqua Comms - at least in terms of bids - and the Board must know what they are. FWIW, I agree with them that they shouldn't disclose individual NAVs for the things we are trying to sell. I usually want maximum disclosure, but so will the parties who are trying to take advantage of DGI9's distress.

The Verne earn-out NAV has actually gone up, which is encouraging. Given everything I've read about the money that the new owners are pouring into it, it would seem there is a good chance of receiving the full amount. The fact that it is valued at only £29m suggests they are being conservative with it. Then again, the old Board valued it at £27m, and we now know they were hopeless.

Nevertheless, I'm inclined to trust the new NAV of 46.5p more than before. They must think that is close to what can be realised, otherwise the new Board finds itself in the doghouse with the old one.

[eezymunny] 01/10/2024 07:41

Tx duncan. My first detailed browse through this one, thankfully.

Too much talk of NAVs here, but NAV can go up in smoke very quickly when there´s high gearing, of course. Certainly not a "you can´t lose from here" situation IMO.

I´ll have a more detailed look....

[duncansawalker] 01/10/2024 07:15

Eezybunny. 2024 accounts out on Arqiva's website.
When you strip out the shareholder loans there are net assets. Sharholders equity exists, about 900m.

[foetus in your brain] 01/10/2024 07:13

Eezy, I think we've all concluded that the board had no sectoral expertise and the managers (who left shortly after the Arqiva deal) were either incompetent, fraudulent or motivated more by increasing AUM than anything else, and their bosses at TP were no better

[williamcooper104] 01/10/2024 07:07

Yep plus they'll need their cash, so it's the gross debt that needs to be cleared, should still be, in theory, relatively easy

[eezymunny] 01/10/2024 07:00

Can we see latest Arqiva accounts? Last companies house set I can see is 2023.
Arqiva could well be worth zero from my first glance. 3.7b net liabilities. Op profit only 200+m.

What a mess.

Can´t understand how anyone was brave enough to invest here. Arqiva itself has the most hideous nest of subsidiaries.

[loglorry1] 01/10/2024 06:43

GHH, do you think Arq is worth more than the VLN or will they just walk away? Arq results were not great. I suppose what's left and the 50m debt is worth more than current market cap but still a lot of questions. The main future upside seems to be the earn out but it may take some time. Getting the debt paid down seems to be a major priority.

[eyesofblue] 30/9/2024 22:20

How can media be reporting likely imminent sales when that wasn’t mentioned in the RNS? More leaks?

[ghhghh] 30/9/2024 22:07

I’m reassured that the new team appear to be ‘owning’ today’s update and I would be very surprised if the short term realisations are at least in line with the 46.5p NAV.

After the previous management fiasco, which has destroyed DGI’s credibility, it would be crazy for the new guys to take a hit with their first sale!

Agree that Arqiva is too big a single investment and will warrant a large discount to NAV. That’s my principle concern.

Why did DGI wait till 5.30pm to announce? I’m on hols so didn’t scrutinise the results with much diligence (it was lunchtime!) but I couldn’t see anything referring to say an imminent sale. Auditor sign off on the GC statement going to the wire re the RCF default? I suspect that statement took a few drafts.

Media does report that a couple of sales could be imminent though…

[bdbd11] 30/9/2024 21:28

Thanks everyone for posting their analysis and thoughts. Whichever way I read it, even with quite some pessimism, I just can't see how this isn't outstanding value at current levels. Fortunately I had some divi's drop and managed to top up on this afternoon's fall. I can't see how suspension was a fear (it would perhaps be a blessing), but grateful for the chance to buy lower. Good luck all.

[stemis] 30/9/2024 21:28

Bad as the results are, they are hardly a surprise. Indeed NAV is slightly higher than flagged on 13 Aug.