Investing in the ‘plumbing of the internet’: Cordiant Digital Infrastructure

CORD invests in the ‘plumbing of the internet’…by Alan Ray

Overview

Cordiant Digital Infrastructure (CORD) is a digital infrastructure specialist with a strategy of buying, building and growing core digital infrastructure assets that provide the ‘plumbing for the internet’. Although CORD is structured as an investment trust, it can be viewed as a diversified operational company, with control ownership over six companies, of which the largest two make up over 80% of the portfolio. Portfolio companies are located in Poland, the Czech Republic, Ireland, Belgium and the US in descending order of value.

Key to CORD’s strategy is that, while it is building out datacentre infrastructure related to the growth in AI, revenues are anchored on existing digital infrastructure models such as TV, radio, mobile telecoms and fibre networks, and it has a large book of contracted revenues extending over many years. By design, CORD can self-fund its investment programme, rather than having to rely on raising fresh capital from investors periodically. CORD’s management team is led by Steven Marshall, who has a wealth of experience in the infrastructure sector, notably in his role at the American Tower Corporation, where he pioneered many of the approaches used to manage CORD’s portfolio of businesses. Recently, Steven took over 99% ownership of CORD’s portfolio advisor, which we expand on in the Management section.

Since its IPO, CORD has maintained a progressive and fully covered dividend and is guiding for the same in the financial year ending 31/03/2027. The dividend yield, 3.6%, is lower than average for an infrastructure trust and reflects the total return approach, where cash is reinvested into the portfolio businesses to fund further growth opportunities. In an infrastructure context, CORD’s gearing is conservative, at approximately 40% LTV, with the majority of that at fixed rates and no imminent refinancing events.

Analyst’s View

CORD’s ownership of assets such as datacentres and fibre networks means that it is well positioned to capture the AI trade. We would argue, however, that its ownership of assets with long-term cashflows in areas like TV, radio and mobile phone network equipment makes it a unique each-way bet. On the one hand, it has the locations and connectivity to build on the datacentre theme, but on the other, much of its revenues come from segments with proven business models. Further, as we explore in the Portfolio section, CORD’s extensive ownership of broadcast towers gives it a huge advantage because even as what and how data is broadcast evolves, the physics of owning hundreds of towers in proven locations with power and data connections doesn’t. CORD’s large book of contracted revenues means it can self-fund its growth strategy, rather than having to rely on sometimes unreliable equity or debt markets.

As the progressive dividend and relatively low Gearing show, although CORD offers growth upside, it is still fundamentally a conservative business. Given how close it is to an operational company, investors should naturally expect there to be short-term fluctuations in the execution of its growth strategy. CORD’s discount has narrowed significantly in the last year or two, from a nadir of well over 40% to its current 15%, but we note that the current market cap, approximately £950m, is almost the same as CORD’s total book of contracted revenue, which is a simple but interesting datapoint. In our view, CORD offers investors the chance to participate in AI-related growth while remaining anchored on proven cashflows, which makes for a compelling combination.

Bull

• Capturing growth in digitalisation in a conservative infrastructure framework
• Long-term cashflows provide the resources to self-fund growth strategy
• Progressive dividend with substantial cash cover

Bear

• A very concentrated portfolio exposes investors to company-specific risks
• A lower dividend yield than some other infrastructure specialists
• Idiosyncratic currency risk with exposure to Poland and the Czech Republic

Read the full research on CORD here >

Disclaimer

This is a non-independent marketing communication commissioned by Cordiant Capital. 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