Digital 9 Infrastructure Share Discussion Threads

[nimbo1] 22/3/2023 12:42

I read something yesterday saying data centres currently being traded at cap rates of 8-10%... I assume that's a lot higher rate (or lower valuation) than where dgi9 were buying them through the end of zirp. That combined with the debt could be an issue?

As you suggest the low is probably in once investors can be sure stability exists, dividend is at the right level etc.

[williamcooper104] 22/3/2023 09:30

Good suggestion - will drop a line too They should just blame stubbornly high inflation for cutting the dividend, with a pledge to rebuild once Acquiva's inflation swap accretion payments stop in a few years The swap payments are almost the same as the dividends Doesn't look like they are in EBITDA probably because they're treated as interest, when in fact they are hedging revenue so ought to be in EBITDA - anyways DGI do give a clear reconciliation from EBITDA to operating cashflow - so that's probably just nit picking

[williamcooper104] 22/3/2023 09:26

Indeed - DGI ought to be a good compliment in a portfolio to HIClL/INPP HICL/BBGI/INPP have all behaved as a good relative store of value

[donald pond] 22/3/2023 08:37

I have dropped the manager a line setting out my views on the dividend. If anyone wants to, the contact details are here.

[e-mail]

I was a director of GCP, another high yielding infrastructure trust, so I know how the managers can think, and the dividend can become sacrosanct in the mind. But I think DGI9 is different in that most of us saw an opportunity for growth here and diversification rather than just a cash cow. I've tried to explain that to the manager.

Do drop them a line: you would be surprised how little investor feedback these companies get.

[alan pt] 21/3/2023 22:58

@wc104 Thanks, like your thinking on the divi "3 percent yield with a path to getting to 8-10 yield in a few years, whilst generating 10-12 total returns" sounds good to me

Got to be potential for a new manager to stamp their mark and make the hard decision?

HICL and INPP are only 5% yield and with very little growth potential

[williamcooper104] 21/3/2023 15:54

Against all of that - the assets are excellent, cheaply valued and highly attractive to PE and/or listed US REITs/infra funds Also as an aside - looks like the Nordstream pipeline was blown up by a Ukrainian oligarch - so we don't have to worry about Russia sabotaging under sea cables

[williamcooper104] 21/3/2023 15:51

So while I can see how we can get to divi covered I can't see how we can keep paying the un-covered divi for 3-4 years - whilst funding capex and de-levering Acquiva Something has to give, and out of strengthening the balance sheet, expansionary capex or the dividend - it's the dividend that's of lesser importance A quick cut to say a 3 percent yield with a path to getting to 8-10 yield in a few years, whilst generating 10-12 total returns Not even sure that the share price would tank so much if the divi cut - or if it did more to do with manangenb confidence given allassuannces that the divi is safe

[donald pond] 21/3/2023 09:56

From liberum Digital 9 InfrastructureUpbeat CMD highlights strengths of portfolio companiesAnalyst: Shonil ChandeMkt Cap £617m | Share price 71.3p | Prem/(disc) -34.9% | Div yield 8.4%EventDigital 9 Infrastructure held a CMD yesterday with presentations from the CEOs of Verne Global (Dominic Ward), Arqiva (Shuja Khan), and the chairman of Aqua Comms (Alan Harper). Verne Global - Well-positionedThe team behind Verne Global identified Iceland as an ideal market for data centres based on its capacity to provide 100% renewable baseload power and complimentary climate, with the latter key to minimising what is otherwise an expensive and energy-intensive cooling. The first customer was signed in 2011, increasing to 32 by 2018. While many of the earliest investors into Icelandic data centres focused on blockchain-related processing, this was never a primary focus of Verne Global. It has focused on high-performance computing, where the cumulative spend was $18bn in 2018. This is expected to increase by several times over the next few years as workloads increase to support the further development of AI, for example.Segmentation of data centre demand is a key theme currently, with companies increasingly splitting their spending on data centres based on the required latency. For example, a bank with trading-based demands may highly prioritise minimising latency and therefore require metro-based edge data centre capacity. However, this represents c.5% of the market. For most applications, it makes commercial and environmental sense to spend elsewhere. The cost savings to companies are significant given that they can save $5m per year per MW of power used by locating in Iceland compared to the UK, for example. This is driving energy-intensive processing of use cases around AI, graphical design, and chip design to markets like Iceland. DGI9's Finnish and Farringdon-based data centres are now managed by the Verne Global team. It was noted that only about 5% of overall data capacity demand needs to be deployed into urban areas. This factor as well as Iceland's increasing connectivity (IRIS subsea came online recently) and the wider surge in data creation is strengthening Verne Global Iceland's positioning. Aqua Comms - A strategic partner to the likes of Meta and MicrosoftAqua Comms' Chairman, Alan Harper, has been involved with Aqua Comms across the time it has been owned by DGI9. He has been involved in a number of entrepreneurial projects since retiring from a senior executive position at Vodafone.Aqua Comms generates revenues from selling subsea cable lease capacity and O&M services, including the management of subsea cable landing facilities. Aqua Comms focuses on the Atlantic market, where it has few peers as an independent company involved in the buildout and management of subsea cables that underpin the internet. The company was an early identifier of the opportunity arising from data replacing voice as the main medium being carried undersea. By focusing on the Atlantic, the chairman described how Aqua Comms was able to develop relationships with OTTs like Meta, who are now the main drivers of subsea expansion. The likes of Meta and Microsoft have evolved from being Aqua Comms' customers to strategic development partners. It was noted that the Atlantic market is the most competitive in subsea so it was interesting to hear that the lease rates available on routes such as Europe to India are c.10-12x higher than the Atlantic, for example. Aqua Comms manages DGI9's EMIC-1 subsea cable that will commence operation in 2024, which will provide a carrier-neutral platform for Aqua Comms services in India. The recent acquisition of Openbyte by Aqua Comms was driven by the knowledge and licenses this will bring. Arqiva - Defensibility of linear TV and leader in smart water meteringCEO Shuja Khan made a number of interesting observations on the core broadcast market, where linear TV comprised 58% of UK video consumption in 2022. UK adults, particularly those above 50, are consuming more than four hours a day of video and radio content. Arqiva's principal exposure to linear TV is through Freeview, where its Arqiva's broadcast infrastructure covers around 4/5 UK households. Arqiva's two business segments are media distribution and smart utilities. Within media distribution, the segmentation is TV (37%), radio (23%), satellite (7%), and global media (7%). Within TV, a number of the hardest parts of the UK to reach by fibre mean that it will take a number of years for fibre to be effectively rolled out to make internet-provided TV sufficiently viable for all. There is a cost element too and an environmental aspect as well. The current UK internet infrastructure would not be able to cope if all linear TV was moved online and even theoretically this would be at a significant environmental cost. On Arqiva's smart utility business, Arqiva's existing broadcast infrastructure is key strategic advantage. Arqiva's water metering business has two core customers currently, Thames Water and Anglian Water. The amount of smart water meters deployed is expected to grow significantly over the next few years with c.18 water utility companies having to significantly increase efficiencies. It was noted that parts of East Anglia could run out of water by 2030. Liberum viewDGI9's CMD achieved three things in our view. The most important of these was emphasising that the operating companies are led by leadership teams with significant experience in the sector. It also highlighted the fundamental opportunity these companies have, or some of their segment have, to significantly benefit from the c.38% forecast CAGR in global data demand. Finally, on a fund-specific level, the integration and symbiosis of the DGI9 strategy was emphasised, with Verne Global's leadership team taking over management of the Finnish and London data centres, and the ability of Aqua Comms to both provide site line to new opportunities based on where cable capacity is being built, as well as manage future revenue drivers to the fund, like EMIC-1.Another key theme that was evident from the presentations was the mission-critical approach to ESG.Beyond Nordic data centres, subsea is crucial to reducing the digital divide and by participating in a carrier-neutral capacity, DGI9 has access to higher margins while also helping increase access. Also, the closing remarks by the investment manager included a section on the path to a fully-covered dividend, which re-iterated the drivers discussed in the annual results. These are principally 1) a significant moderating in inflation from 2024, which will considerably reduce Arqiva's principal accretion cash settlement; 2) the impact of pre-sold Verne Global capacity being fully utilised; 3) the impact from EMIC-1 cable revenues. Whilst this pathway will take 12-18 months to come through, the Chairman and manager stressed that the 6p dividend is sustainable in the medium to long term, which is a view we support and one that is being underappreciated by the market. We view the c.30% discount to NAV as a highly attractive entry point.

[alan pt] 20/3/2023 22:20

Interesting read - www.d9infrastructure.com/wp-content/uploads/2023/03/D9-Annual-Report-2022-FINAL.pdf

Some useful info in there around the Arqiva swaps, the RCF and VLN rates. Makes some of the cashflow and divi (lack of) cover easier to understand

A bit of "this is how things get better in 3 or 4 years time" which is great, but not that helpful in stopping the short term nosedive!

[spoole5] 20/3/2023 17:59

Looks like they may need to write it off!

[alan pt] 20/3/2023 15:47

Bought a few more at 71.5. Will probably regret... But it's almost getting to the point where they could write off Arqiva and still be decent value!

[spectoacc] 20/3/2023 15:11

And how's that going for them ;)

To be fair, EPIC just looks like TRY are attempting to have their stake in a larger, more liquid vehicle that may allow them to sell out again. Can you imagine trying to offload 17% of EPIC in this market, or indeed any market? They should just sit in it for the divi, like most shareholders are.

Curious how the fallers are staying weak today, despite the FTSE going from -120 pre-market call, to +80 now.

[spoole5] 20/3/2023 15:09

Maybe best to stick up the for sale sign like EPIC

[alan pt] 20/3/2023 15:08

Capital Markets Day presentation going on at the moment, not the best day for it - wonder if anyone actually turned up?

David Stevenson due to do a piece on digital infra soon, will be interesting to see his views

[spoole5] 20/3/2023 15:06

Another ATL today.

[williamcooper104] 17/3/2023 12:41

At some point you might have US REITs with more UK commerical property than UK REITs

[williamcooper104] 17/3/2023 12:41

Look at the valuations on cell tower and data centre REITs in the US (against higher treasury yields too)It's part the UK markets and part poor balance sheet management/management generally While I shouldn't hold a stock in hope of a bid the first point does suggest that we might see one

[apollocreed1] 17/3/2023 10:34

I see UK shares in good companies like this sinking every day and it makes me think that it's just because the UK market is hated and can't attract investors. If this was listed in the US it would be much higher rated.

[gopher] 16/3/2023 13:56

I have had it on my watchlist for some time. The problem is that investors in this sector don't want the kind of problems that this fund has created for itself

[williamcooper104] 15/3/2023 16:00

DYOR - but probably a good day to jump in

[spoole5] 15/3/2023 14:39

BBGI on my watchlist

[williamcooper104] 15/3/2023 14:39

Check out BBGI today - it's dropping like a bank Bad market On the plus side gilts soaring And if inflation does crash by end of year this will do fine

[spoole5] 15/3/2023 14:36

And another ATL. Put it up for sale before they destroy any more value