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The challenge lies with unlocking value in Arqiva.
A very different situation now to Verne sale, we’re no longer as distressed
So NAV 84p a share 70% haircut for selling costs as per Verne Global minus RCF gives me 50p a share …. Works for me.
Quite a few funds are selling according to FT .... if it takes 2 years to realize gains, that's cash tied up for some funds that they may want to work elsewhere ... there are enough UK stocks down 50% the past two years.
For me, the deal breaker to hold revolves around what the VLN bought - a 50% stake in the shaholder loans is massive. Shareholder loans come before equity in the case of bankruptcy but after bank loans. Arqiva Limited has £3 bn in reserves as operasting profits squirreled away each year.
The VLN has to be paid off in a few years so current assets even on firesale will pay off the RCF and VLN ... where I would expect an IPO of Arqiva to be worth around £0.80 - £1 a share for DGI9 holders with an IPO buying out DGI9 equity stake for £350 million and the 50% interest in shareholder loans.
Enjoy.
Who the hell is selling. 30p minimum now
I've seen this comment floating around now:
"When D9 acquired its 51.76% economic interest in Arqiva, it acquired 51.76% of these shareholder loan notes."
So the £169 Million VLN was used to buy out CPP's shareholder loan notes interest in Arqiva. That's about 10p in the £ according to my sums.
I wonder how long it will take for the market to wake up here?
Arqiva does indeed generate £180 m plus per year operating profit ... but one has to look deeply into the accounts of the subsiduary companies and bear in mind that Arqiva is a private business. It's method of accounting is to lock in operating profits each year into reserves and book a shareholder credit or loan as a result - so there is no direct cash flow towards DGI9 that helps its bottom line.
The above said, Arqiva Limited as opposed to Arqiva Global Limited as the parent company has some £3.18 Billion squirreled away in reserves as equity so the assets of Arqiva itself are huge.
Don't forget that Arqiva Global has looked to IPO with a market cap of £6.5 bn in 2017. It sold of a chunk of transmission capabilities to Cellnet in 2019 to pay off some of the shareholder loans, but is still looking to IPO and must itself be valued as a £2 bn business so a sizeable return for DGI9 if/when this happens.
The market doesn't like the debt tied with the holding company of Arqiva but much of this debt is a shareholder loan of operating profits so not real debt in the sense of the word to a third part like a bank.
There is no question to my mind that DGI9 should never have bought Arqiva - but it did ... and if it can unlock the value in Arqiva DGI9 shareholders will be amply rewarded in my view.
The answer your question Geldautomat, ”Does that mean $135m of the $575m sale is held until December 2026 depending on performance of Verne as a business?" is sort of yes. It's based on performance during 2026 so I would have thought the payment would be after December 2026, maybe after the annual report. As Verne is not a publically quoted company I think they have quite a bit of flexibility in when this is completed. I think the earliest the payment will be made would be mid 2027. It's a long-term hold.
Arqiva is still generating revenue and if I remember correctly £180m per year, so plenty of money to pay off the RCF.
The "market" presumably doesn't like the £80 m of the RCF left lying around - while it will also be trying to wash out the people that bought below 20p. Selling costs for Verne were expensive so DGI needs to get rid of another £100m or so of assets to be debt free so two of the smaller holdings or aqua comms leaving it cash positive.
There is what ... 50p a share locked up in Aquiva say 40p with a fire sale and a few add ons so 50p a share seems reasonable.
I still have my discounted sale values returning 50p+ a share (absolute worst case scenario). Chances are high asset sales return much more, but that's still 100% gain in a year. Verne sale showed how quickly deals can be done with some motivation. Let's see what the next offer for an asset is
I’m very trigger happy … but not even I was prepared to sell at 25p this morning.
Around 10p a share earn out if Verne hits its targets … was my understanding. It’ll pay management fees if nothing else going forwards. Was always in the small print.
Filled my boots at 23-23.5p this morning.
Ok, so I don't quite get this bit...
"A potential earn-out payment of up to US$135 million (approximately £106 million*), which is payable subject to Verne Global achieving run-rate EBITDA targets for the financial year ending December 2026 (the "Performance Target"). The total earn-out will be payable if 100% of the Performance Target is met and will be reduced on a sliding scale with no earn-out being payable if Verne Global does not achieve 80% of the Performance Target. This target is as set in the business plan provided to all potential purchasers at the time of the sale process."
Does that mean $135m of the $575m sale is held until December 2026 depending on performance of Verne as a business? So we've reduced the RCF to $80m after sale proceeds and will be able to pay the rest 'IF' Verne performs as expected? I guess the SP will react next to the value of the next asset sale in relation to it's NAV. If only 20% lower we might see some real momentum upwards