Digital 9 Infrastructure (DGI9), the worst example of value destruction among investment companies in the past three years, has stabilised its portfolio in the first half of the year and should be ready to return what is left of shareholders’ capital in early 2026 after the revelation that its accounts were massively overvalued two years ago.
However, responding to today’s half-year results, broker Stifel believed the payout could be as little as 4p per share for a company whose shares had plunged 92% to 8.9p at yesterday’s close since their September 2022 peak of 116p.
Having seen net asset value (NAV) halve in 2024 after writedowns of its main holdings, the valuation of the portfolio fell a further £14.2m in the first half of the year from £297.3m to £283.1m.
Nevertheless, the company said the half-year results showed it was making “strong progress” towards its wind-down under InfraRed Capital Partners, who replaced Triple Point Investment Management last October.
Massive overstatement in 2023
An independent review of around £270m, or 40%, of valuations in the 2023 annual report, with which the current board and fund manager had no involvement, concluded there was a £111.5m overstatement of Aqua Comms, the Irish subsea cable operator it is selling for $44.5m, and Arqiva, the UK broadcasting infrastructure platform, its main asset not due to be sold for two years.
It said the shortfall was “driven by an incorrect allocation of working capital between the established and growth constituent parts of the business along with related adjustments to certain capital expenditure assumptions and the treatment of tax losses”.
Although there is no impact on the 2024 accounts, Stifel analyst Iain Scouller said the revelation would “strengthen the negotiating position with Triple Point over termination agreements which are still ongoing”.
The company said it had recovered $2.8m from Triple Point as a result of an external fraud at a wholly-owned subsidiary. “The board is still engaged with Triple Point as to the outstanding issues between the parties,” it said.
The 4.9% or 1.7p decline in NAV per share to 32.7p in the six months to 30 June was mainly due to a 0.7p per share movement in Aqua Comms with a further 0.5p per share knocked off to reflect no further payments in the “earn-out” of Verne Global, the Icelandic data centre operator sold in March last year.
Chair Eric Sanderson said the £10.3m sale of SeaEdge UK1, a Newcastle-based data centre and subsea cable landing station, and $43m disposals of EMIC-1, the Europe Middle-East fibre system developed by the company, had enabled it to repay its £53m revolving credit facility (RCF).
Sanderson said the Aqua Comms sale still required regulatory approval in several jurisdictions but once complete would enable the company to make its first distribution to shareholders in early 2026. He was unable to say how much that could be as the amount was subject to the Aqua Comms’ proceeds and an assessment of DGI9’s working capital requirements.
He said the company’s two other assets, Elio Networks, the Dublin-based internet service provider, and Arqiva were enjoying “robust” operational performance.
Elio’s profits fell 9% to £2m on unchanged revenues of £4.1m and Arqiva’s earnings reduced 4% to £157m on revenues up 7% to £358.1m. Sanderson referred to the uncertainty over Arqiva’s digital terrestrial television (DTT) services as UK regulator Ofcom considers whether TV broadcasting should move to internet-based platforms.
Both businesses are not due to be sold until 2027 to maximise their value.
Sanderson said the first phase of the wind-down was largely complete and the company’s financial position stabilised. “We have a platform to maximise shareholder value over time, following the full repayment of the RCF and completion of the Aqua Comms sale expected by the end of the year.
“With value-enhancing initiatives underway at Elio Networks and key decisions in relation to contract renewals regarding Arqiva’s DTT business to take place in 2027, significant value remains to be unlocked. The board and investment manager continue to seek opportunities to maximise value for shareholders.”
The shares firmed 0.4p or 4.8% to 9.3p.
