Cordiant Digital Infrastructure, a London-listed entity with a market capitalization of £950 million, is capitalizing on Europe's burgeoning digital infrastructure market. The company specializes in owning and developing essential digital assets, including mobile masts, fiber-optic cables, television and radio transmitters, and data centers, across central European countries and New York.
Buy, Build, and Grow Strategy
Cordiant's operational strategy is centered on acquiring established, cash-generating infrastructure businesses in smaller European markets, investing in their expansion, and fostering growth. The company has so far integrated six businesses in Poland, the Czech Republic, Ireland, Belgium, and New York. Collectively, these entities operate 1,440 communication towers, over 14,000 kilometers of fiber, and 24 data centers. Key holdings include Emitel in Poland and CRA in the Czech Republic, which are described as national champions in broadcasting and mobile masts, respectively. Broadcasting currently generates the largest portion of revenue, followed by fiber, with towers and data centers contributing the remainder. These businesses were acquired at an average of ten times cash profits.
Predictable Revenue and Dividend
The appeal of digital infrastructure lies in its predictable revenue streams. Cordiant has approximately £952 million in contracted revenue extending to 2044, with a significant portion linked to inflation. This steady cash flow supports a dividend yielding about 3.5 percent, which is comfortably covered, while also providing funds for reinvestment. Since its inception in 2021, the fund has delivered an 11.3 percent annual return on net assets, exceeding its minimum target of 9 percent. Cordiant's recent move to the main market and inclusion in the FTSE 250 have broadened its investor base.
Broker's Outlook and Valuation
Cordiant's net asset value is reported at 146 pence per share, while the stock is trading at approximately 124 pence, representing a discount of around 15 percent. Panmure Liberum, Cordiant's broker, views this valuation gap as excessive and has raised its price target to 171 pence from 120 pence, maintaining a buy rating. The broker's analysis suggests that current accounting valuations may be conservative and do not fully reflect the potential sale value of the physical assets. Based on valuations from similar transactions in the market, Panmure estimates Cordiant's shares could be worth closer to 179 pence, a 44 percent increase from the current price. The broker anticipates a total return of approximately 42 percent over the next year, considering potential re-ratings and the dividend.
Potential Risks
Despite the positive outlook, certain risks remain. The persistent discount could continue if investor confidence does not improve, potentially hindering Cordiant's ability to raise capital for growth initiatives by issuing shares below their asset value. The execution of growth projects, such as building and leasing data centers, carries inherent risks. Furthermore, earnings generated in Polish zloty, Czech koruna, and euros could be devalued in sterling terms if the pound strengthens. Rising energy prices could also impact profit margins if existing power purchase agreements expire. Investors are advised to approach headline asset valuations within the fund sector with caution.
Nevertheless, for investors seeking exposure to the growing demand for data, Cordiant offers a direct route to owning the underlying infrastructure at a valuation its broker believes is undervalued.