Cordiant Digital (LON: CORD) invests in the critical infrastructure of the modern internet, including cloud and data centres, mobile and broadcast towers, as well as fibre optics networks. It targets attractive total returns of at least nine percent per annum over the longer term, but has been going through a difficult time.
The £800m investment trust suffered a brutal de-rating alongside the broader infrastructure sector in the wake of the mini-budget in September, yet it has not participated in the same sort of recovery experienced by its peers in the period since. Its shares are currently trading on a 17% discount to the estimated NAV, which the broker Investec describe as an attractive entry point.
Cordiant recently published a comprehensive trading update that provided much improved clarity on the operating performance of its portfolio holdings, balance sheet, dividend and capital expenditure plans. The Board has also announced a discretionary buyback programme of up to £20m subject to working capital requirements.
Positive Update
Investec say that they are encouraged by the transparency and disclosure provided in the update and that the operational performance of the underlying assets is strong. Contractual inflation adjustments for 2022 are expected to be implemented from the start of 2023, which should underpin further revenue and earnings growth going forwards.
The broker likes the company’s ‘buy, build and grow’ strategy that utilises the management team’s strong operating expertise. Cordiant pays a decent yield of 4.3% and the dividend is well covered by free cashflow, which allows the company to reinvest the excess back into its businesses to drive further growth.
Another plus point is the reassuringly conservative balance sheet. Net gearing on a look-through basis is 30%, with cash balances of £101m and a further borrowing capacity of £133m giving plenty of potential liquidity for future investments. This will be needed as the portfolio currently consists of three large, well-diversified platforms: CRA, Emitel and Hudson Interxchange (HIX).
Portfolio And Outlook
CRA is a leading independent multi-asset digital infrastructure platform in the Czech Republic, which has a customer base that consists largely of blue-chip or government counterparties. Emitel is based in Poland and is the leading independent broadcasting and telecom infrastructure operator in the country, whereas HIX is an interconnect data centre in the United States.
Investec believe that Cordiant has strong fundamental attractions and have reiterated their buy recommendation. Investors can also take comfort from the fact that the investment management business, the individuals within it and the portfolio companies have significant skin in the game with 5.7m shares between them.
With optimism growing that interest rates may be nearing a peak there is no obvious reason why the shares shouldn’t get back to the 110p level where they were last year and then build from there. This would be a decent increase from the current offer price of 93p, although it is a very concentrated portfolio with much of it located close to the war in Ukraine, so there is plenty that could go wrong.