United Kingdom

MIDAS SHARE TIPS: Digital 9 can recharge your portfolio

Ever since he became Prime Minister, Boris Johnson has been determined to improve Britain's infrastructure. The Queen's Speech underlined his commitment to 'build back better', investing not just in transport and housing but also in the internet and the plumbing behind it. 

The number of people using the internet has doubled over the past decade but online traffic has soared 12-fold, as consumers and businesses spend increasing amounts of time ordering goods, communicating with customers or friends and watching TV and films on their phones, laptops and computers. 

That traffic is expected to double again over the next two years while the amount of data produced and consumed is likely to increase at an even faster rate. 

Looking ahead: The number of people using the internet has doubled over the past decade but online traffic has soared 12-fold

All this activity depends on digital infrastructure – subsea cables to transmit data around the world, centres to store and protect that data, underground cables to bring it to homes and offices, and wi-fi transmitters so we can stay online wherever we happen to be. 

Digital 9 Infrastructure was established to develop and operate these types of assets, broadening internet access, increasing connection speeds and aiming to deliver 10 per cent annual returns to investors, via attractive dividends and share price growth. 

The company listed on the stock exchange in March, the shares are £1.12 and should increase steadily as the business expands and dividends rise. Digital 9's top team provides a layer of confidence too. 

The group is chaired by Jack Waters, a big cheese at US fibre and data centre specialist Zayo Group, until it was sold for $14.3billion (£10.2billion) in 2020. Day-to-day management of the company falls to Thor Johnsen, who has spent more than 15 years in the digital infrastructure sector and has a long history of delivering double-digit returns for his investors. Having raised £300million on flotation, Waters and Johnsen immediately spent £160million on Irish subsea cabling specialist, Aqua Comms. 

Subsea fibre cables are described as the backbone of the internet, responsible for 98 per cent of all internet traffic. Demand for new cables is growing at a rate of knots and reliable experts are in short supply. Aqua Comms is one such business. It owns and operates around 12,000 miles of subsea cables, stretching from New Jersey to the Nordic countries and from New York to the UK and Ireland. 

Customers include Google, Facebook, Amazon, Apple, Microsoft and Netflix, as well as big telecoms companies such as ATT in America and BT over here. 

Many of these firms take out cable rental contracts of around 20 years or more and there are maintenance deals too, stretching out for decades. 

Digital 9 has big ambitions for this newly acquired business – intending to add new subsea networks and almost double its profits over the next four years. 

Such projects are complex and costly but Digital 9 works in partnership with the big tech companies, which contribute to funding and agree to long leases once the cables are laid. 

The process means that Digital 9 knows where future income is coming from and where demand for data centres will be greatest – at either end of the cable networks. 

This gives the company a big advantage when it comes to acquiring and developing centres in the right places. Johnsen has already pledged to obtain eight sites over the next 12 months and is in active discussions on a number of deals, with news expected soon. 

The company has two further potential strings to its bow – wi-fi connectivity in towns and underground fibre-optic cables in under-served areas. The vast majority of people access the internet via mobile phones and tablets these days and huge investment is needed to make sure they can go online easily and effectively. 

Johnsen has first refusal on the acquisition of a business that enhances urban wi-fi connectivity via so-called 'small cells' – boxes that sit on lamp-posts and will help secure super-fast 5G access for people on the move. 

Digital 9 also intends to move into the terrestrial fibre business. Only 15 per cent of the country has access to high-speed fibre cables, the Government is keen to take this to 85 per cent and Johnsen wants to play his part, particularly in rural areas and social housing estates, where connectivity is typically patchy or non-existent. 

This is part of Digital 9's overarching desire to make the world a better place, even as it delivers returns to investors. 

The group takes its name from the ninth UN sustainability goal – to build resilient infrastructure, promote inclusive and sustainable industrialisation and foster innovation. 

On the financial front, a 6p dividend is promised for this year, putting the stock on a 5.3 per cent yield, with more attractive payouts expected in the years to come.

Traded on: Main market Ticker: DGI9 Contact: d9infrastructure.com or 020 7201 8989 

Midas verdict: Digital 9 operates in a fast-growing industry that governments around the world are keen to promote. At £1.12, this is an appealing investment for ethically minded and income-hungry investors alike. 

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