I wanted to add a little more detail to my piece in Citywire yesterday, on the launch of a new digital infrastructure fund called Digital 9 Infrastructure.
You can read the article HERE.
For the avoidance of all doubt, I will be trying to get access to the launch through my broker (Killiks). My hunch is that this will fairly quickly trade at a 10 premium, such is the scarcity of reasonably priced assets in this space.
That word REASONABLY PRICED is also crucial. I didn’t labor it in the article but if we assume that the net cash earnings once invested are running at a yield of 7.5% – 6% yield and 1% fees plus a margin of error above that – then the equivalent Price to earnings multiple should be running at about 13. Note, these are all my, reasonable I believe, assumptions.
Now, look at the table below which is from a virtual portfolio from www.sharepad.co.uk. As you can see valuations are eye-watering in this space. I don’t for one minute think this fund would have ever approach these valuations, but I don’t think it unreasonable that over time if the portfolio proves itself (an important and very big if), we could see this fund trading a premium of closer to 20% with a yield below 5% – stranger things have been known to happen!
Listed Data Centre and ToweerCo stocks
|Name||Segment||Ticker||%chg 1m||%chg 6m||%chg 1y||%chg 2y||%chg 5y||PE|
|Switch Inc||Data Centre||SWCH||4.16||-7.91||3.05||104||99.6|
|Helios Towers PLC||TowerCo||HTWS||-1.68||-2.33||-4.25||9.1|
|Crown Castle International Corp||TowerCo REIT||CCI||2.28||-6.92||8.29||45.9||98.8||84.2|
|SBA Communications Corp||TowerCo REIT||SBAC||-2.83||-9.59||6.77||55.5||193||166.6|
|GDS Holdings Ltd||Data Centre||GDS||10.5||29.6||91.3||264|
|American Tower Corp||TowerCo REIT||AMT||-0.614||-15.1||-5.72||33.6||149||51.5|
|Digital Realty Trust Inc||Data Centre||DLR||1.93||-4.94||9.7||27.3||78.9||121.9|
|Equinix Inc||Data Centre||EQIX||-0.278||-2.27||20.4||88.9||133||110.3|
|Cellnex Telecom SA||TowerCo||CLNXE||-4.74||-16.5||13||111||219|
|CyrusOne Inc||Data Centre||CONE||2.77||-3.21||13.9||38.7||105||>500|
Two other additional points.
The first is that there is an ETF listed in the US which invests in a broad swathe of these REITs and digital infrastructure plays. Sadly UK investors can’t readily buy these US-listed ETFs but the table below does show some of the key investments in this very popular fund.
Digital Infrastructure ETF – Global X Data Center REITs & Digital Infrastructure ETF (VPN)
TOP 10 HOLDINGS of Global X VPN fund As of 01/14/21
|NET ASSETS (%)||TICKER||NAME|
|11.25||CCI||CROWN CASTLE INTL CORP|
|10.66||AMT||AMERICAN TOWER CORP|
|7.70||DLR||DIGITAL REALTY TRUST INC|
|5.46||GDS||GDS HOLDINGS LTD – ADR|
|4.41||VNET||21VIANET GROUP INC-ADR|
|4.27||COR||CORESITE REALTY CORP|
|4.16||NXT AU||NEXTDC LTD|
|3.86||SBAC||SBA COMMUNICATIONS CORP|
Lastly, just to ram the point home around growth in demand for digital, take a look at the fun facts factoids below. The numbers tell a remarkable story.
Facts About the Internet
- 47% – Overall increase in internet usage in Q1 2020
- 23% – Year-on-year growth in Netflix subscribers
- 71% – Of adults now use video calls at least once per week compared to 35% at the start of 2020
- 530m – Number of global meeting participants per day
- 4 years – The number of years Disney+ are ahead of projections with 87m paid subscribers in December
- 50,000 – years of content streamed by Americans in one day in April 2020, an increase of 170
- During the pandemic, the US bandwidth consumption within business hours went up by 41%. Microsoft saw a 775% increase in the use of cloud services in Italy and a robust increase in regions that have enforced social distancing and lockdown orders even Zoom reached more than 200 million daily meeting participants.