Buy rating on new digital infrastructure investment trust

Cordiant Digital Infrastructure (LON:CORD) has successfully invested the majority of its IPO proceeds and has been rewarded with a buy rating by Investec. 

I recently wrote about the launch of two digital infrastructure IPOs and how they would enable private investors to gain exposure to this new exciting area. One of them, Cordiant, has now deployed around 90% of the £370m it raised and looks well-placed to meet its minimum annual NAV return target of nine percent per annum. 

CORD invests in operating digital infrastructure assets, with a focus on data centres, mobile/broadcast towers and fibre-optic networks that are primarily located in the UK, the EEA and the US. These sorts of investments can be thought of as the ‘plumbing of the internet’ and tend to have low obsolescence risk, while often benefiting from lengthy contracts with high renewal uptake and inflation escalators.

There are significant opportunities for growth in digital infrastructure due to the increase in the number of global internet users, data consumption and data transfer speeds, as well as the higher volume of data leading to greater demand for storage. The new fund is managed by Cordiant Capital, which has a highly experienced and well-resourced management team with a demonstrable operational track record in managing and driving growth in this area. 

Growth strategy 

Cordiant plans to grow its NAV through a buy and build strategy that involves reinvesting excess cash flows. This capital can be deployed in a number of ways including expanding existing facilities, such as adding square footage to a data centre, extending fibre networks, or adding new and complementary assets to existing platforms such as ‘build to suit’ towers. 

The company recently announced that it has completed the acquisition of a platform business located in the Czech Republic and − subject to final due diligence − a fibre optic network in Norway along with some land for the development of a data centre. In total these will cost £451m, comprising £318m of equity and £133m of debt.

As explained in the prospectus, diversification will be achieved at the asset level rather than at the platform level. The Czech acquisition provides exposure to 17 broadcast towers, 643 towers capable of hosting Mobile Network Operators, almost 4,000km of optical fibre network and six edge data centres serving hundreds of corporate clients, while the Norwegian purchase operates a 1,100km network that is used by industrial, utility and telecoms businesses. 

Future plans 

There is currently a huge degree of concentration risk at the platform level given that only around £43m of the IPO proceeds are yet to be invested, but this should be reduced as the company gradually increases its equity base by undertaking further fundraising issues. These could be quite substantial as the company has identified a pipeline of advanced opportunities in the US, Scandinavia and other parts of Europe that are worth around £900m. 

Following the initial acquisitions Cordiant has announced that it plans to accelerate its dividend guidance with a payment of three pence per share in respect of its first financial year to the end of March 2022. It should also get to its annual target of at least four pence before its fifth year with progressive increases thereafter. 

Investec believe that CORD provides investors with a compelling and unique investment opportunity with strong secular drivers and that it has an important role to play as a diversifier in a portfolio. They particularly like the combination of the attractive yield and progressive dividend policy with the potential for capital growth, which is why they have issued their buy recommendation.