Cordiant Digital Infrastructure 19 June 2024

The management team behind Cordiant Digital Infrastructure (CORD) aim to capitalise on the growing demand for interconnected technology by buying, building, and growing a portfolio of infrastructure assets linked to the digital world. This includes towers which support TV, radio, telecoms, fibre-optic cables for internet connectivity, and data centres for storage and cloud computing support (see Portfolio).

Since the trust’s launch in 2021, the managers have acquired five companies which are owned directly or indirectly in their entirety. This allows the team, which contains a number of operational specialists, to execute a strategy of growing revenue and operating profits generated by these assets and as a result, their values. They aim to generate a total net return of 9% per annum including a moderate dividend. The portfolio is revalued twice yearly with an in-house model, which is verified by an independent accounting firm (see Performance).

The trust pays a Dividend of 4p per share. This is designed to provide investors with a cash return whilst also allowing the managers to invest in the growth of their assets. At the current share price, this dividend offers a yield of 5.5%.

The current wide Discount of the shares is contributing to the high yield. The trust initially traded at a premium before moving to a discount in mid-2022. This has since widened out significantly to its current level of 35.6%, over one standard deviation wider than the average since the trust’s inception.

The trust has strict rules on Gearing, with a maximum look-through allowance of 50% of gross assets, which includes both company and trust-level borrowings. At present, this level is below 40% of which c. 13% is at the trust level.

Infrastructure as an asset class has become an important portfolio diversifier in the past decade, and we believe CORD offers differentiation within the asset class due to its unique asset base and approach (see Portfolio). CORD provides ‘core plus’ infrastructure, meaning infrastructure assets that have the potential to increase their revenue generation through increasing utilisation or adding capacity. The CORD team concentrate on those sectors which form the backbone for the continued growth of connected technology in the economy. The managers’ ambitious return objective of 9% net per annum, which is to come primarily from capital growth, means the trust offers the potential of equity-like returns from an asset class which may exhibit lower operational risk than equities, supported by a trend with structural demand (see Performance). That said, the portfolio is currently relatively concentrated, which brings its own risks.

We believe the trust’s wide Discount could offer a compelling entry point at this juncture. The discount has widened out from mid-2022 onwards as interest rates rose. However, these have arguably peaked and could become a tailwind to sentiment towards the trust. We believe there is significant scope for the discount to narrow should the interest rate environment improve, and if this brings the share price back above NAV, would allow the managers to issue shares to reduce the concentration of the portfolio. The wide discount has also increased the yield available on the trust, despite its capital growth tilt (see Dividend). As such, we believe the current discount creates an income opportunity in the short term, as well as future potential for capital growth should the macro improve.