Digital 9 Infrastructure (DGI9) has published a company update including details of an unaudited portfolio valuation and updated net asset value and the news is not good – its board believes that “the aggregate portfolio valuation as at 30 June 2024 is likely to be materially below the latest published portfolio valuation as at 31 December 2023”. DGI9’s audited NAV as at 31 December 2023, was 79.3p per share (published on 30 April 2024) but, based on the work that has been done so far, the board anticipates that the NAV as at 30 June 2024 will be in the region of 45p per share – this suggests a reduction of around 43%.
Why has this significant drop in NAV occurred?
DGI9’s new board is undertaking a review to assess the fair value of the group’s portfolio under International Financial Reporting Standards and, whilst this process is still ongoing, the board, in conjunction with its advisers and having obtained an independent valuation on certain portfolio companies, has determined that the aggregate portfolio valuation as at 30 June 2024 is likely to be materially below the latest published portfolio valuation as at 31 December 2023. It says that a major part of the NAV reduction is attributable to a re-assessment of the assumptions relating to the availability of finance for underlying portfolio companies and its impact on portfolio companies’ growth outcomes in the valuation models, as compared to those inputs used in arriving at the NAV as at 31 December 2023. It adds that the valuation process is yet to be completed which may result in further changes. The board expects to release the company’s interim results for the six-month period ended 30 June 2024, no later than 30 September 2024. [QD comment: It would appear that DGI9’s NAV calculation has continued to assume that it would be able to grow assets, while not having the finance in place to do this, and that this has come to light because the recently appointed board has gone through the portfolio with a fine toothcomb. The drop is significant and shareholders will rightly ask why wasn’t this picked up sooner. This is a sorry tale but it does illustrate one of the key advantages of investment companies over open-ended funds – if things are not working, you can fire the board and/or the board can fire an underperfoming manager where necessary. It is fair to ask how long it would have taken DGI9’s NAV to catch up with reality, if there hadn’t been a change of guard.]
Sale processes
DGI9 says that non-binding offers for certain assets have been received and a selected number of preferred bidders have been admitted to a second phase of the sales processes, which will include detailed due diligence. Sales processes are also ongoing for various assets in the portfolio, excluding Arqiva. Further updates will be provided as these sales processes progress although there is no guarantee that any of these will lead to a sale.
Update on the review of the investment management arrangements
DGI9’s board says that it has made significant progress in its independent review of the company’s investment management arrangements and will make a further announcement upon the conclusion of the process in the near future.
