Digital 9 Infrastructure (DGI9)
Everything's gone wrong. Who is responsible?
I recently was given the honour of presenting the first talk at a Mello Monday webinar, on the clustercuss that is Digital 9 Infrastructure. I happen to think that the board have taken a “kitchen sink” approach to valuation here, and with a share price of 17.5p compared to an NAV of 45p that looks, for the first time, to be realistic or even conservative, it isn’t a bad opportunity. I certainly hope so as I have shares here.
However, my talk attempted to summarise the background to this Jersey incorporate listed company, which has seen its share price drop from 115p to 15p, during a period where, remarkably, the NAV was barely written down and the company on several occasions said the portfolio was performing in line with expectations.
Anyway, here is the presentation. It was very tight for time, so I didn’t get to say the final point, which was that Sachin Saggar at Stifel had called this right from an early stage. It is a pity that the Mifid rules that prevent brokers notes from reaching the hoi polloi also prevented his wise words of warning from reaching a wider audience. Far better that investors be given access to all information and told to take positive stuff with a pinch of salt than for words of wisdom to go unheard.
I’m thinking about what to do next. The Manager, Triple Point, are a regulated entity, and need in my view to be investigated.
One minor correction. I believe that in February 22 DGI9 changed its rules to increase the concentration limit from 20% of gross asset value to 25%. Why they did that and whether that was appropriate is a matter for debate.
Please comment, share etc.
Battery storage is definitely another sector to worry about. Depreciating assets are valued on the basis of assumptions about growth in the cashflow they generate that bears no relation to reality. And very few sector experts outside of the managers of these assets. The only meaningful NAV is the price the asset could be sold for in the market.
At DGI9 it was literally the equivalent of buying a restaurant with a profit of £100k for £1m, then saying you plan to spend £1m to double its capacity and increase prices so that in 5 years time you have profit of £500k, which you discount back for 5 years, get to a discounted profit of £300k, say that justifies an EBITDA of 25, and that £1m asset is suddenly worth £7.5m. And then, the real kicker, is that you don't have the funds to pay for the expansion!
To little avail I've been spreading the warning on Gore Street Energy Storage on Advfn for a while, which shares many of the similarities to DGI9 in terms of NAV calculation and dividend (but hopefully not the same fate; although shares are down 50% from their height). It's amazing though how holders are able to deceive themselves and brush away concerns, even when their counter analysis is demonstrated to be false.