Towercos signal the prospect of healthy returns

I’m pretty sure that adventurous investment types don’t have to make a lot of fuss to realize that we live in a world of exponential growth in online data traffic.

(Choose your favorite option) “Internet of thingsThe rise of video, virtual work, or e-commerce de rigueur As analysts breathtakingly outline the future of digital.

As an online glutton, digital hardware infrastructure spans everything from broadband fibers to metropolis homes and data centers, transcontinental cable lines and towers full of antennas connecting 3G, 4G, or 5G traffic. Is required.

Inevitably, the word “infrastructure” means a more specific investment opportunity. We hope that assets that generate stable income will grow over time as demand begins. The problem is that for most retail investors, the options are quite limited. Especially in Europe.

In the United States, sub-sectors of real estate investment trusts (REITs) that invest in towers and base stations that enable the mobile Internet have long been established, many of which are listed in the table below.

These tower cos, as they are called, tend to have fairly low yields, but are structured as a tax-effective means of income (like REITs). The weakness is not because of low cash flow, but because it is a profitable business that interferes with all the equipment on the tower, but because the valuation is literally empty. Many of these vehicles are traded in insane multiples, and their share has doubled or tripled in the last few years.

But that doesn’t mean they aren’t interesting yet. If I had to choose, I recommend that Switch Inc and Cyrus One may seem a bit unloved, especially when compared to giants such as Crown Castle.

We also pay close attention to Colony Capital from a slightly different angle. Colony Capital is a large hedge fund that is now a dedicated digital infrastructure specialist called Digital Colony. Once the transformation is complete, it will manage its own assets and a set of funds for other investors focused in this area. The value of stocks has skyrocketed in recent months, but in my view the potential for asset management is enormous.

In Europe, there are businesses equivalent to these e-Reit companies, such as Helios Towers, which trades in London, and Cellnex Telecom, which trades in Spain. I like Helios, typically in an adventurous way, because of its strong market position in Africa, the ultimate data growth market. If an analyst’s earnings growth estimate is reached, the stock is not exorbitantly high.

You can add Vantage Towers traded in Germany to the list of towercos in Europe. This is a new spin-off consisting of Vodafone’s European Towerco assets. It’s not cheap on most indicators, but it’s cheaper than many US Towercos in the table below, so I think it appeals to cautious institutional investors who want to boost their portfolio with digital action.

But with my money, I want to own a stake in Vodafone, the largest shareholder. This looks like a bargain, but it’s a record.

Undoubtedly, the simplest and most elegant way to this niche is via one of the two listed digital infrastructure funds that have hit the London market in the last few months. The first and still largest asset under management is the Cordiant Digital Infrastructure. It is overseen by experienced Canadian investment adviser Cordiant Capital and has surprised everyone in the market by raising over £ 350m.

Then in March, the D9 Digital Infrastructure, a vehicle managed by Triple Point, was introduced. It raised £ 300m on a very similar mission. I invested in both in an IPO. Although the D9 focuses on marine cables connecting North America and Europe, they share common characteristics and are investing in a combination of towers, base stations, data centers and fiber broadband businesses.

Both provide investors with a total return of about 9-10%, with dividends ranging from 4% (Cordiant) to 6% (D9), which should increase over time.

Given the very high valuations of US equivalent assets, it should be pointed out that, at least for D9, many of its seed assets entered the portfolio with 10 to 15 times higher returns. Given that D9 already has a large seed portfolio in the fund and is currently generating cash, I’m a bit biased towards D9, but both funds have checkboxes checked for me.

Like many growth-oriented asset classes today, this is one of the spaces with stunning valuations. But I think many adventurous types will still find a good reason to own them.

David Stephenson is an active retail investor and is interested in securities if mentioned. Email: twitter: @advinvestor

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