Difficult times continue for Digital 9 Infrastructure (DGI9 ) which has announced it will not deliver a dividend for the second quarter, removed its 6p payout target for the year and reported disappointing bids for its syndication of Verne Global, with the deal behind schedule.  

Shares in the alternative income plummeted over 21% to 43.6p following half-year results that showed high borrowing and finance costs were overshadowing strong performance from its investee companies and required a more conservative approach to managing its balance sheet.

There have been question marks over the 10%-yielder’s ability to deliver its quarterly 1.5p per share dividend despite efforts from the board in July to reassure investors that it was strengthening its finances and understood the importance of the payout to income investors.

DGI9 had £30m of unrestricted cash available as of 27 September, down from £47m at the end of June, and just £11.3m remaining on its main £375m revolving credit facility (RCF), down from £18.8m at 30 June.

The investment company said that while it expects to have cash flow to cover the dividend by the end of next year, paying down the overdraft and investing in its growth capital pipeline will take priority.

Diego Massidda, who joined the investment manager Triple Point as the beginning of September as head of digital infrastructure, said he believed ‘remaining disciplined in our capital management approach in the current high interest rate environment, will contribute to the company’s sustainable long-term financial performance’.

Liberum’s Shonil Chande said the withdrawal of the target was ‘well overdue’ and ‘was set too high at the outset and became unsustainable once capital markets closed’.

DGI9’s board will start a formal consultation with shareholders on 2 October to decide the ‘optimal future dividend policy and discuss the future direction of the company’.

Chande was less positive about the ongoing syndication process of Verne Global, the Icelandic data centre operator that makes up 22% of the portfolio. The deal is delayed with terms due to be announced in the fourth quarter rather than the third.

DGI9 said it had received several non-binding offers for a stake in Verne, which has operations in Iceland, Finland and the United Kingdom, at or around the net asset value (NAV) as of the end of 2022.

This disappointed Chande who said the ‘best case for resurrection’ would be to achieve a valuation for Verne ‘materially above’ the NAV.  He highlighted the main part of Verne, the Iceland business, has always been ‘valued conservatively’ and was marked down to £275m in interim results today, down from £329m at the end of 2022.

‘We have viewed this process as being much less about “NAV validation” and more about what value can be extracted from what should be one of the best data centre businesses available today,’ he said.

Chande believed the outright sale of Verne Global would be the best option for shareholders, as there is a ‘likely a significant discount’ being applied for the company remaining a minority investor given ‘its low capacity to support capex at a point of peak opportunity’.

Half-year decline

In the first half to the year Digital 9’s net asset value (NAV) fell to £886m, an 8.8% decrease in the NAV per share from 109.8p to 100.1p. The NAV took a hit from adverse foreign exchange movements and elevated borrowing costs.

At the end of June, DGI9 had total debts of £544.8m that accounted for a high 44% of gross assets. The borrowings comprised of the credit facilty and a vendor loan on Arqiva, the UK radio and TV network provider, in which it bought a 52% stake last year.

However, the group said the weighted average discount rate, or a measure of the riskiness of the assets, was lowered during the period from 12.6% to 11.8% as its investee companies began to scale and mature. This alleviated some of the pressure on the NAV.

Since launch in March 2021, DGI9 has delivered an annualised total underlying return of 6.4%, below its 10% target.