SMALL CHAPTER IDEA: Cordiant offers exposure to Internet and telecom plumbing in Europe

Friendly digital infrastructure In the space of a few years since its 2021 initial public offering, it has emerged as a London-listed vehicle for investors seeking exposure to the pipelines underpinning internet and telecommunications in Europe.

It may be a niche appeal, but a series of smart acquisitions in Poland, the Czech Republic and Ireland have paved the way for a strong share price rise and a progressive dividend policy over the past 12 months.

Take Cordiant’s investment in Polish network Emitel, for example. Emitel distributed £11.3 million in cash to Cordiant in the first half, driven by new transmission contracts and inflation-indexed revenue adjustments that led to strong cash generation.

Then there’s Czech provider České Radiokomunikace (CRA), which posted double-digit growth in both revenue and EBITDA, with both metrics rising 16.5 percent year-on-year during the period.

CRA’s performance was boosted by the acquisition of Cloud4com, which strengthened its data center and cloud operations, and continued demand in its broadcast and telecom units.

For outside analysts at Kepler Trust Intelligence, these results represented “another step forward” for Cordiant.

Not only has the underlying portfolio continued to develop, in line with the managers’ ‘buy, build, grow’ approach, but the trust’s liquidity profile has improved significantly through the refinancing of debt facilities.

That has eliminated the risk of short-term refinancing with nothing to pay until 2029, as well as increasing the servicers’ sources of liquidity and providing a solid foundation for the trust, Kepler said.

Strong performance from its portfolio companies allowed Cordiant to increase its first-half dividend by 5 percent year-on-year to 2.1 pence per share, in line with its annual target of 4.2 pence per share with EBITDA coverage 4.7 times.

These results highlight Cordiant’s sensible approach to capital allocation, which balances growth investing with sufficient dividends to keep income investors satiated.

“We have to be extremely careful with capital allocation policy,” said co-CEO Seven Marshall.

‘We’ve done it from the beginning and with respect to the recognition that interest rates were actually quite low in the early days and would most likely rise over time.

“That’s why we wanted good cash flow and good growth assets in our investment portfolio.”

While Cordiant has allocated some cash flows to share buybacks, Marshall acknowledged that shareholders “also want a good progressive dividend.”

Therefore, “We have been extremely careful in trying to increase the dividend at a faster rate than we established in the IPO,” he added.

“The dividend that we provided last year and continue to provide this year is ahead of what we were projecting in the IPO at the time of launch.”

Marshall set a prime example of putting your money where your mouth is when he bought one million shares in the group at an average price of 90.7p in mid-December.

It was Marshall’s second significant share purchase this month after buying 170,000 shares at 88.1p on December 3.

Cordiant’s experience in capital allocation has allowed Marshall and the team to transmit knowledge to the group’s investees.

As co-CEO Benn Mikula explained: “With this balanced team and our deep operational experience, we can help companies improve, make immediate acquisitions, operate within capital discipline and import business best practices from the biggest names in the world. world”. industry.’

Despite Cordiant’s 22 per cent year-on-year share price rally and its eye-catching £663m valuation, the shares are still at a sizeable discount to net asset value (NAV) of 30.5 per cent (as of September 30 ).

However, this discount has closed considerably: in March it was closer to 47 percent.

A better discount to net asset value could be anticipated if Cordiant continues to apply appropriate capital allocation notes, but that will be decided by the markets.

For all the breaking news on small cap companies, visit www.proactiveinvestors.com