Hi Oak, thank you for the analysis; sometimes markets don't get it...i didn't either ....or the market is implying derteriorating operating metrics for Arqiva and thus a deteriorating credit outlook.
Is there Arqiva debt trading publicly to see how the corresponding yields have evolved?
Anyway thank you for your writings , which are always presented in an entertaining fashion...
Thanks for the reply ... I have no training in accounts. But I noted this morning I was looking at Arqiva Limited Accounts as opposed to Arqiva Group Limited - easy mistake to make when looking through Company House.
So each subsiduary of Arqiva Group appears to squirrel away operating profits, where Arqiva group then issues a shareholder note to equity holders and books a loss as a result owing to the accumulated debt of the equity loans ... have I got this about right?
So one further question: DGI9 seem to have paid £300 m for 48% of Arquiva Equity, so I'm guessing that the £163 m VLN bought out CPP's shareholder loans or an element of it - so in principle there is a net zero transaction here if realized.
Bizarre way to do business - but if so then there is indeed a huge sum locked up in Arqiva that needs to be released somehow - where recent DGI9 shareholders will be quids in even if the remaining DGI9 assets simply pay off the VLN and remaining RCF.
Hi Kevin, the shareholder note is a very strange accounting approach but yes they book a loss and create a liability. If you exclude these as well as the "real" debt the remaining assets are substantial.
NB if you look at the Group accounts these are "consolidated" accounts so include all the subsidiaries.
Quite ... the loans is a tax avoiding scheme as far as I can gather - but also a frequent practice for private companies as far as I can gather on-line today. So, with operating profits of £200+ million a year dividend cover of 2 and a yield of 5% makes Arqiva a £2 bn business on the stock market ... so that's your £1 a share for DGI9 holders with near 50% equity on Arqiva alone.
I'm going to add tomorrow morning ... my feelings are that DGI9 holders will end up with Arqiva and a small amount of cash ....
BUT and it wasn't clear from your previous note that Arqiva has £3.5 bn squirrelled away in retained earnings .. I don't think you mentioned it explicitly but you certainly alluded to it - that's a game changing view on the holding.
Maybe an update on the hidden value if not explicitly stated?
Do you know how the expected switch-off of terrestrial TV and Radio is going to affect Arqiva?Presumably all of their TV transmitters and infrastructure will not be needed after the switch-off? So will the switch-off not be a huge negative for Arqiva future revenue and profits and business model?
Is there going to be any need for these TV transmitters and infrastructure in the future?
It's a good question. Arqiva have a guarantee until 2034 for digital transmission, and that date could get pushed back. A related question is will Public Service broadcasting survive? If it does how does that get transmitted?
Campaigning for extending the switch off is healthily underway.
Remember these towers transmit not just TV, it's radio including DAB too. Typically, a TV transmission tower also houses 5G transmission and other comms devices too (Because they are sited in ideal locations aren't they?). Whether all media will just be streamed via IP/wireless in the future is a possibility but somehow I think linear TV may continue far longer than expected - it's still strong today - 17m people daily - despite a plethora of other options. Also on demand content can be transmitted too. Arqiva also owns satellite infrastructure too, so its eggs aren't all in one basket.
Final thought, if you've read this article you'll also know that Arqiva deliver much of the broadcast infrastructure and comms, multiplexers and so on. Even if there isn't transmission towers there will still be broadcasters (one assumes) therefore a need for the products and services Arqiva provides. Arqiva, I expect, will simply evolve with the times - as it has done for its many years.
Are you aware of this litigation from the BBC for £22m? I sold out of my holding in May because that was the final straw in a stream of bad news and disappointments. However, I have bought back a small holding at 29.65p as it seemed all bad news was priced in
Yes, the incident cost Arqiva a net £4.5m (£45.5m rebuild and extraordinary costs; with £41m received via insurance). £16m will be "other income" in the FY2024 accounts. The further possible cost is the litigation and Note 27 says "Bilsdale Tower Fire:
(Arqiva) Management continues to work with specialist advisors to assess any further potential financial penalties and service credits that may be due to third parties. At the current time it is not possible to determine the expected outcome or quantification of such amounts over and above the amounts already provided. The group holds insurance coverage and management continues to engage with the group's insurers to assess the value of losses and restoration costs."
My opinion on this is because they are defending it (presumably as Force Majeure/Act of God) they believe the BBC don't have a case. But the potential downside is limited by its insurance too.
Interesting result of the strategic review today. ....
Hi Oak, thank you for the analysis; sometimes markets don't get it...i didn't either ....or the market is implying derteriorating operating metrics for Arqiva and thus a deteriorating credit outlook.
Is there Arqiva debt trading publicly to see how the corresponding yields have evolved?
Anyway thank you for your writings , which are always presented in an entertaining fashion...
Saludos from Cadiz
What about the retained earnings under assets, equivalent to £3,310 m ?
The £3,310m are the gross total assets as at 30/06/23
See:
//www.arqiva.com/group-financial-results/2023/Subsidiary-Financial-Statements/Arqiva%20Ltd%202023.pdf
Page 69 retained earnings.
and page 60:
Dividends and transfers to reserves
The Directors’ of the Company have not recommended a dividend in the year (2022: nil).
The profit for the year of £342.0m (2022: profit of £246.8m) was transferred to reserves
Thanks for the reply ... I have no training in accounts. But I noted this morning I was looking at Arqiva Limited Accounts as opposed to Arqiva Group Limited - easy mistake to make when looking through Company House.
So each subsiduary of Arqiva Group appears to squirrel away operating profits, where Arqiva group then issues a shareholder note to equity holders and books a loss as a result owing to the accumulated debt of the equity loans ... have I got this about right?
So one further question: DGI9 seem to have paid £300 m for 48% of Arquiva Equity, so I'm guessing that the £163 m VLN bought out CPP's shareholder loans or an element of it - so in principle there is a net zero transaction here if realized.
Bizarre way to do business - but if so then there is indeed a huge sum locked up in Arqiva that needs to be released somehow - where recent DGI9 shareholders will be quids in even if the remaining DGI9 assets simply pay off the VLN and remaining RCF.
Hi Kevin, the shareholder note is a very strange accounting approach but yes they book a loss and create a liability. If you exclude these as well as the "real" debt the remaining assets are substantial.
NB if you look at the Group accounts these are "consolidated" accounts so include all the subsidiaries.
Confirmation from DGI9 itself apparently:
"When D9 acquired its 51.76% economic interest in Arqiva, it acquired 51.76% of these shareholder loan notes."
So the £169 million VLN indeed bought an interest in the Arqiva loan notes.
Little wonder DGI9 went for the deal - had they pulled it off it would have made a small fortune.
Quite ... the loans is a tax avoiding scheme as far as I can gather - but also a frequent practice for private companies as far as I can gather on-line today. So, with operating profits of £200+ million a year dividend cover of 2 and a yield of 5% makes Arqiva a £2 bn business on the stock market ... so that's your £1 a share for DGI9 holders with near 50% equity on Arqiva alone.
I'm going to add tomorrow morning ... my feelings are that DGI9 holders will end up with Arqiva and a small amount of cash ....
BUT and it wasn't clear from your previous note that Arqiva has £3.5 bn squirrelled away in retained earnings .. I don't think you mentioned it explicitly but you certainly alluded to it - that's a game changing view on the holding.
Maybe an update on the hidden value if not explicitly stated?
BW
Do you know how the expected switch-off of terrestrial TV and Radio is going to affect Arqiva?Presumably all of their TV transmitters and infrastructure will not be needed after the switch-off? So will the switch-off not be a huge negative for Arqiva future revenue and profits and business model?
Is there going to be any need for these TV transmitters and infrastructure in the future?
It's a good question. Arqiva have a guarantee until 2034 for digital transmission, and that date could get pushed back. A related question is will Public Service broadcasting survive? If it does how does that get transmitted?
Campaigning for extending the switch off is healthily underway.
https://www.rsnonline.org.uk/rsn-joins-calls-to-protect-broadcast-services-ahead-of-second-reading-of-governments-media-bill
Remember these towers transmit not just TV, it's radio including DAB too. Typically, a TV transmission tower also houses 5G transmission and other comms devices too (Because they are sited in ideal locations aren't they?). Whether all media will just be streamed via IP/wireless in the future is a possibility but somehow I think linear TV may continue far longer than expected - it's still strong today - 17m people daily - despite a plethora of other options. Also on demand content can be transmitted too. Arqiva also owns satellite infrastructure too, so its eggs aren't all in one basket.
Final thought, if you've read this article you'll also know that Arqiva deliver much of the broadcast infrastructure and comms, multiplexers and so on. Even if there isn't transmission towers there will still be broadcasters (one assumes) therefore a need for the products and services Arqiva provides. Arqiva, I expect, will simply evolve with the times - as it has done for its many years.
Are you aware of this litigation from the BBC for £22m? I sold out of my holding in May because that was the final straw in a stream of bad news and disappointments. However, I have bought back a small holding at 29.65p as it seemed all bad news was priced in
https://cleanfeed.thetvroom.com/17859/news/bbc-demand-22-3m-in-damages-in-arqiva-lawsuit/
Yes, the incident cost Arqiva a net £4.5m (£45.5m rebuild and extraordinary costs; with £41m received via insurance). £16m will be "other income" in the FY2024 accounts. The further possible cost is the litigation and Note 27 says "Bilsdale Tower Fire:
(Arqiva) Management continues to work with specialist advisors to assess any further potential financial penalties and service credits that may be due to third parties. At the current time it is not possible to determine the expected outcome or quantification of such amounts over and above the amounts already provided. The group holds insurance coverage and management continues to engage with the group's insurers to assess the value of losses and restoration costs."
My opinion on this is because they are defending it (presumably as Force Majeure/Act of God) they believe the BBC don't have a case. But the potential downside is limited by its insurance too.
,........desensitised to “Discount to NAV”
Nailed it there. But in such, oppurtunity abounds.