Cordiant Digital Infrastructure 31 January 2025
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Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by Cordiant Digital Infrastructure. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
The share price of Cordiant Digital Infrastructure (CORD) had a very strong recovery in 2024, rising nearly 18%. Despite this, the current Discount is still wide and considerably wider than its average since inception.
CORD owns a portfolio of assets designed to provide the backbone of infrastructure that can support the growing digital economy. The highly experienced team at Cordiant Capital undertake a ‘Buy, Build & Grow’ approach to developing their portfolio, designed to grow future revenues and their assets’ valuation. The trust has a goal of a 9% annualised total return, coming from a combination of capital growth and income and, as we discuss in the Performance section, this has been achieved since launch.
The ‘Buy, Build & Grow’ approach has led to significant development of several of the five-strong portfolio companies in recent months. For the trust’s two largest holdings, Emitel and CRA, the managers have financed the growth of the DAB networks in Poland and the Czech Republic, as well as expanding the towers portfolio. This has led to the signing of several new contracts, which has driven strong revenue growth in the first half of the financial year and resulted in high cover on the trust’s recently increased Dividend. The managers have also invested into the growing data centre sector, which is benefitting from increasing AI demands. This includes developing their existing portfolio following the acquisition of a new sixth company (see Portfolio).
The managers have reduced the trust’s refinancing risk by renegotiating the Gearing facilities, at both the trust level, through the announcement of a new €200m facility, and at portfolio company level. This has resulted in improved liquidity and means the trust has no debt maturing until mid-2029.
CORD’s impressive share price performance could lead investors to believe the digital nomenclature relates to the US mega-cap names, such have been returns in 2024. In truth, we believe this reflects the resilience of the underlying asset class as a key piece of infrastructure in the increasingly interconnected world as well as improved investor confidence in the ability of the management team to capitalise on this.
Furthermore, we believe the share price movement is a prime demonstration of what impact a narrowing Discount can have on shareholder returns. The discount closed from a nadir of c. 48% in April 2024, to c. 26% at year end, showing a narrowing of c. 21 percentage points and resulting in a share price return of c. 43%. Despite the rally, we believe the current discount could still provide upside from here, as it remains wider than the average level since inception and as portfolio development continues apace.
One possible factor behind the wide discount has been the trust’s Gearing position. However, we believe this has been largely stabilised following the agreement of a €200m facility, with no refinancing required until 2029. In our view, this has removed one of CORD’s main near-term risks and provided management breathing room to continue to develop the portfolio.
The portfolio development has also resulted in good NAV performance, which was ahead of the annualised 9% target in the first half of the 2024 financial year. In our opinion, this is a good demonstration of the management team’s expertise, which has not only increased valuations of their holding, but also supports the Dividend, which has been raised twice in the trust’s short history.
Bull
- Trust has delivered strong NAV, and very strong share price performance in the near term
- Trust has raised dividend twice since inception, which is well supported by revenue
- Despite a rally, the discount is wider than its historic average
Bear
- Portfolio is highly concentrated and reliant on two key holdings
- Gearing remains a factor, although below maximum limit, with refinancing risk having been mitigated
- New acquisition using joint ownership could signal change of strategy