Results analysis: Cordiant Digital Infrastructure

• Cordiant Digital Infrastructure (CORD) has released its financial results for the year ending 31/03/2024. Over the year, CORD saw its NAV per share increase by 7.8%, and a total return of 9.3%  based on the ex-dividend opening NAV. CORD has no formal benchmark.
• Over the course of the year, the trust completed purchases of Speed Fibre, an Irish fibre provider in October 2023 and Norkring Belgie, a Belgian towers company in January 2024. This takes the total number of portfolio companies from three to five, split across a mix of towers, data centres, fibre networks and sensors.  
• The biggest contributor to performance was Emitel. This was primarily a result of a value uplift due to new contract wins and growth in the recurring cash flow. Emitel also benefitted from a currency translation effect, a change in net debt due to a refinancing and from a change in the discount rate.  Speed Fibre also contributed positively to performance due to an increase in earnings resulting from new business wins and better cost control.
• CRA was a slight detractor as, while underlying revenue growth contributed positively, this was offset by an increase in the discount rate and forex headwinds. Hudson Interxchange saw increased revenue which narrowed losses, though still detracted.
• CORD announced an increase in the dividend of 5% to 4.2p per share. Dividend cover, as measured by the managers’ adjusted funds from operations figure, increased to 1.6x primarily due to an increase in operational revenue.
• The discount widened from 28.3% at the beginning of the period to 48% at year end, despite strong operational performance, though the increase in the NAV will have had an effect on this. The board has allocated £20m to a share buyback programme. In the year to 31/03/2024, £5.4m had been spent on 7.3m shares which added 0.4p per share to NAV.
• Gearing remains largely unchanged at c. 39% of gross assets (64% of NAV) on a look through (i.e. consolidated) basis, with approximately £168m of liquidity across both the trust and underlying businesses.
• Chairman Shonaid Jemmett-Page stated “The underlying strengths of [CORD] and our portfolio, the growth in the sector and the attractiveness of our core markets together lead the Board to look forward to the year ahead with confidence”.

Kepler View

We believe these results demonstrate another encouraging year for Cordiant Digital Infrastructure (CORD). The managers have delivered strong performance, aided by good operational revenue and contract wins from the portfolio’s two largest holdings, Emitel and CRA. This was somewhat offset by unfavourable foreign exchange movements, through CRA in particular, though Emitel notably benefitted from this factor which regardless, is arguably temporary.  

The portfolio has grown from three to five companies, CORD having completed acquisitions of Speed Fibre and Norkring Belgie in the year. This, in our opinion, has helped to diversify some of the concentration risk of the portfolio as well as supporting the income generation, therefore the dividend cover. Speed Fibre also benefitted NAV performance after an increase in its value due to a rise in revenues and profits following new business wins and good cost control. As Norkring was owned for under two months in the period it has not been revalued.

The increase in operational revenue that has come from both the new holdings, and better performance of the existing holdings has contributed to an improved dividend outlook. The managers use adjusted funds from operations (AFFO) to calculate dividend cover. Underlying revenues grew over 50% from the previous year, and whilst there were increased costs for capex and financing, AFFO still increased by 13% to take dividend cover to 1.6x. We note this doesn’t account for growth capex though this is arguably non-recurring and will support future revenue growth. This has allowed the managers to announce a 5% increase in the dividend to 4.2p per share. This is the second time the dividend has been increased in the trust’s short history and we believe adds to the investment case.

The trust had liquidity of c. £167.7m at the year end, of which £62.8m was at the trust level, with £59.1m in undrawn facilities and the remainder at the holding level. Total net debt increased to £585.1m, from £552.9m at the interim statement on 30/09/2023. This means gearing has increased slightly from 38% at the interim statement to 38.9% on a GAV basis (or 63.7% of NAV), though this remains below the maximum level of 50% of GAV (100% of NAV). The managers argue their gearing positioning and interest cover is substantially stronger than their competitors, both other infrastructure investment trusts and towers companies.

Despite the encouraging performance, the discount on the shares widened to 48%, compared to c. 28% at the beginning of the year. We believe this could represent an attractive entry point for long-term investors if the operational portfolio continues to show resilience and improving revenues and market sentiment changes, with rate cuts a potential catalyst for this. The board began its £20m buyback programme in the year, with £5.4m spent so far on 7.3m shares at an average discount of 37.6% which was accretive to NAV, adding 0.4p per share.

Press continue to read the full article...