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
10.08 EQIX EQUINIX INC
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
4.03 CONE CYRUSONE INC
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.