IFT - Infratil

[Ggcc]

Well I am surprised to hear this. I am not denying it is true, but do you have a source for this information? If true, it does explain why Telstra has no policy on dealing with CDC. Because if customer companies supply their own equipment, and CDC simply supplies the cabinets, that means there is no CDC to deal with from a Telstra perspective. Telstra must deal with the CDC customers individually.

If CDC is wholly a 'private data centre' model, that is very different to what AWS and Microsoft Azure are offering. In the past, running a 'Private Data Centre' was the only game in town. But has the data centre market evolved now?

Ggcc's explanation would also explain companies signing up for a 30 year lease. Who in their right mind would sign a deal with a technology company, locking them into incumbent technology for 30 years? Perhaps a company that doesn't sign away their future technology path? A company that still owns all of their hardware and software assets?

SNOOPY

At the road shows they openly discuss about this. To be honest if one is in your town, just go past and take a look. The team are very approachable and they all know their stuff.

[ratkin]

I had an email from the share registry saying they had removed the funds from my account on Friday, yet nothing has been removed. Did anyone else experience the same thing, or have I given the wrong account number?

[warthog]

I had an email from the share registry saying they had removed the funds from my account on Friday, yet nothing has been removed. Did anyone else experience the same thing, or have I given the wrong account number?

Maybe you gave them the hog's account number? Funds gone!

But no email……

Update: Monday 1244PM Email received.

[Ggcc]

email received and funds gone.

[Paint it Black]

It doesn't look like Jarden are helping to facilitate the Cap Raise? I would rather use my account with them to buy in than pay through my current account. Anyone know the reason why? ASB are doing this.

[Snoopy]

Assumption: I am assuming that because Infratil's investment in CDC is below 50%, CDC is not consolidated in the Infratil accounts.

I am framing my 'title question' from the point of view of new shareholders buying into IFT at 'book value' on the FY2024 balance date.

a/ Net Profit as Reported

From AR2024 p80, that is showing that the carrying value of CDC on the Infratil books is $1,403.4m.
The IFT Group share of NPAT, given IFT owns 48.24% of CDC, is 0.4824 x $201.9m= $97.40m

This means Infratil's investment in CDC is being carried on the books at a PE Ratio of $1,403.4/$97.40m = 14.4
Or looking at it another way, an earnings yield of $97.4m / $1,403.4 = 6.9%. (because Australian franking credits are not recognised in NZ, I guess this means that 6.9% is the 'gross earnings yield')

Given the touted growth prospects for CDC, both the PER and yield, as implied by book value, seem very reasonable.

b/ Net Profit as calculated

Muddying the water is slide 27 of the recent Infratil presentation.
https://infratil.com/news/infratil-a...-equity-raise/
In that, the bar graph shows EDITDAF for CDC over FY2024 of $271m, of which I presume the Infratil share is 0.4824x$271m = $130.7m

Total IFT balance sheet assets for FY2024 sum to $16,109.9m. So in a 'total asset picture', the IFT stake in CDC represents only: $1,403.4m/$16.109.9m= 8.71% of all assets. The net financing expense over the FY2024 year was $366.7m. 8.71% of that figure is $31.9m. So I take $31.9m as 'allocated net interest' that must be offset against against any profit from holding CDC.

i/ We make an assessment that the depreciation and amortisation of CDC assets is systematically charged over 20 years (buildings will probably be more and computer equipment less) .

ii/ We guess that the CDC assets in operation today earn 10% on the original capital outlay. This means the price of assets on the books is $97.4m/0.1= $974m.

Now, 1/20th of that figure is $48.7m. Assuming 'F' (which is generally reserved for one off non-operational transactions), is zero, we can calculate the implied IFT share of NPAT from the EBITDAF figure quoted as follows:

0.7 x ($130.7m - $31.9m - $48.7m) = $35.1m

Comparison Conclusion

$35.1m is well below the $97.4m of NPAT implied in AR2024 on page 80. This could mean a couple of things.

i/ My estimates for 'I' and 'DA' are wrong - could be, I invite readers to comment on my assumptions OR
ii/ there is a large one off gain F which has increased the CDC profit over FY2024 (AR2024 page 80).

The term EBITDAF does not appear once in AR2024. So I am finding it very difficult to see what is going on here, and whether that $97.4m IFT share of CDC profits has been inflated by one offs. I do find it difficult to assess results when the same company publishes annual results using different yardsticks, for -in this case- CDC. Inconsistent reporting just leaves me the impression that the company that is issuing the results has something to hide. I am in the dark as to whether that $97.4m implied profit share from CDC to Infratil for FY2024 is to any extent sustainable or not.

Contrary to my assumptions, it now seems the collective wisdom of this thread is that CDC does not own the computing power housed in their data centres. They own the external shell and the inside cabinets and the wiring that connects everything up. But they do not own the computing power (the fastest depreciating bit). Those 'housed computers' are owned by customers. This realisation has changed my view of the depreciation schedule that will apply to each CDC data centre.

I am now going to push out my average depreciation time from 20 years to 40 years. The buildings may be on the books with a longer life than that, perhaps 50 years. But all of the air conditioning and cooling equipment will depreciate much faster than that. So I will stick with 40 years as a realistic compromise combined total depreciation schedule number. I expect amortisation will be zero over the period, as no goodwill would have been booked in the first place.

Recalculating Net Profit after revising depreciation

iib/ the Infratil share of EBITDAF is 0.4824x$271m = $130.7m

Total IFT balance sheet assets for FY2024 sum to $16,109.9m. So in a 'total asset picture', the IFT stake in CDC represents only: $1,403.4m/$16.109.9m= 8.71% of all assets. The net financing expense over the FY2024 year was $366.7m. 8.71% of that figure is $31.9m. So I take $31.9m as 'allocated net interest' that must be offset against against any profit from holding CDC. (Snoopy amended note: This whole calculation on setting allocated interest from the Infratil balance sheet is wrong. I should be setting allocated interest from the CDC balance sheet, which I do in later calculation iterations. But I am leaving this information unchanged as part of an ongoing iterative process trail)

We guess that the CDC assets in operation today earn 10% on the original capital outlay. This means the price of assets on the books is $97.4m/0.1= $974m. (Note: IFT share of CDC assets only: 0.4824 x $201.9m= $97.4m)

Now, representative depreciation, 1/40th of that original outlay figure, the Infratil share, is ($974m/40=) $24.4m. Assuming 'F' (which is generally reserved for one off non-operational transactions), is zero, we can calculate the implied IFT share of NPAT from the EBITDAF figure quoted as follows:

0.7 x ($130.7m - $31.9m - $24.4m) = $52.1m

Despite lengthening the depreciation profile, $52.1m is still well behind the $97.4m NPAT, the share of CDC's profit owned by IFT actually achieved.

From p2 of the presentation
"EBITDAF represents net earnings before interest, tax, depreciation, amortisation, financial derivative movements, revaluations, gains or losses on the sales of investments, and excludes acquisition and sale related transaction costs and International Portfolio Incentive Fees."

If there were gains in the financial derivatives held by CDC, they could have increased CDC's declared profit, while not affecting the EBITDAF declaration in the Infratil presentation.
https://infratil.com/news/infratil-a...-equity-raise/

Or (second possibility) perhaps CDC has revalued some of their assets higher, and boosted their declared profit via this path?

It is hard to know the answers to these questions, because the raw CDC accounts I have not seen released. Nevertheless the difference in 'declared profit' and 'calculated profit' cannot be explained by just assuming a meaningful change in the depreciation charge rate. I suspect there are some revaluation increases behind the scene, which the plebeian public shareholders in Infratil are not privy to. If so, this means shareholders are actually paying a higher price for the ongoing earning capability of CDC than they think they are.

SNOOPY

[kiora]

I imagine the Kings Ransom?

[kiora]

I wouldn't even try and decipher the wild swings lately.Sold down on volume Friday,brought up on volume today

Funds at play ?

[forest]

We guess that the CDC assets in operation today earn 10% on the original capital outlay. This means the price of assets on the books is $97.4m/0.1= $974m

Hi Snoopy, in the roadshow presentation from memory it was mentioned that CDC presently return between 10 and 15% on it's different assets, so 10% a bit low I think. Maybe halfway 12.5 % is a better estimate as a average.

[Snoopy]

Total IFT balance sheet assets for FY2024 sum to $16,109.9m. So in a 'total asset picture', the IFT stake in CDC represents only: $1,403.4m/$16.109.9m= 8.71% of all assets. The net financing expense over the FY2024 year was $366.7m. 8.71% of that figure is $31.9m. So I take $31.9m as 'allocated net interest' that must be offset against against any profit from holding CDC.

I am now going to push out my average depreciation time from 20 years to 40 years. The buildings may be on the books with a longer life than that, perhaps 50 years. But all of the cooling equipment will depreciate much faster than that. So I will stick with 40 years as a realistic compromise combined total depreciation schedule number. I expect amortisation will be zero over the period, as no goodwill would have been booked in the first place.

Recalculating Net Profit after revising depreciation

iib/ We guess that the CDC assets in operation today earn 10% on the original capital outlay. This means the price of assets on the books is $97.4m/0.1= $974m.

Now, 1/40th of that figure is $24.4m. Assuming 'F' (which is generally reserved for one off non-operational transactions), is zero, we can calculate the implied IFT share of NPAT from the EBITDAF figure quoted as follows:

0.7 x ($130.7m - $31.9m - $24.4m) = $52.1m

Despite lengthening the depreciation profile, $52.1m is still well behind the $97.4m NPAT, the share of CDC's profit owned by IFT actually achieved.

I reckon you guys give me too much rope.I publish tosh like the bold bit above and you let me get away with it? As an excuse for my error I blame Covid brain fog, plus the change in viewpoint (switching between the POV of Infratil and CDC) during the Infratil presentation
https://infratil.com/news/infratil-a...-equity-raise/

So what is wrong with what I wrote? I was calculating an interest bill as part of the procedure to calculate NPAT from EBITDAF. Nothing wrong with that principle. But I was working off the net interest paid by Infratil, when I should have been using the net interest paid by CDC itself! Duh! I apologise for misleading.

CDC had approximately $A3bn in outstanding debt arrangements as at 1st December 2022.
https://www.thelawyermag.com/au/prac...ts-help/429195

Part of the refinancing package at the time included $A308m of US private placement (USPP) issuance. The above reference does not give any hint as to what the agreed interest rate might have been. Without this information I cannot calculate the interest rate bill at CDC. So any hints on where I can find such information, even a ballpark figure, would be most welcome.

Next we move onto the CDC funding strategy today (slide 14 of the referenced Infratil presentation).
"CDC has committed or undrawn liquidity of ~A$2.2bn following the recently executed ~A$860m USPP issuance (June 2024), weighted average tenor now ~5.7 year"

So what this is telling us is that, following a reshuffle to commit more debt to USPP the 'committed and undrawn facilities' are still about $A3bn 18 months down the track. there must be some reason to commit to USPP debt over Australian bank debt. So I am guessing that the total amount of USPP debt disclosed is equal to the complete amount of debt drawn: $A308m + $A860m = $A1,168m

Let's say that USPP funding was secured at a rate of 3% (a pure guess on my part). That means the annual interest bill for CDC would be: 0.03 x $A1,168m= $35m

And the Infratil share of that would be: 0.4824 x $35m = $16.9m

That is very different to the $31.9m (wrong) figure that I was using before. Lots of assumptions used. I am not really sure how good they are, so best I sleep on it before continuing.

SNOOPY