Cordiant Digital Infrastructure Ltd (LSE:CORD) chairman Steven Marshall talked with Proactive's Stephen Gunnion about the company’s capital allocation strategy and growth outlook, particularly in the context of rising interest rates and macroeconomic pressures.
Proactive:
Hello you're watching Proactive. Joining me in the studio today is Steven Marshall. He's Chairman of Cordiant Digital Infrastructure Management. Steven, very good to have you in the studio. Could you start by telling us what the challenges are posed by capital allocation?
Steven Marshall:
Yes, of course, Steven. Well, capital allocation — you could offer dividends to your investors, you could offer buybacks, or you could reinvest the capital into the existing operations. When I talk to investors, some would like yield, some would like growth. In fact, some investors say, “Don't give me yield, I’ve got plenty of yield,” because of the high interest rates on gilts, for example.
So it's walking that balance between what's good for all investors and what's good for the business. To date, we've offered a very attractive yield, just under 5%. You'll see in the trading update issued this morning that we've done a little buyback — that's buying back our existing businesses at a cheaper price than we originally paid.
But what we've found over the last 12 months is that we can buy small bolt-on businesses and invest in organic growth, which comes at a much lower cost than the buyback rates we're seeing.
Proactive:
Why is the growth element of CORD’s strategy so important?
Steven Marshall:
Very important. When we set out with the IPO four years ago, we launched with a strategy of buy, build, and grow. That’s been central to our success. We've acquired high-quality assets with good management teams, strong brand image, and competitive moats in mid-market geographies.
That’s served us well. We've achieved an 11% internal rate of return, exceeding our original hurdle rate of 9%. So it's important to support those teams and encourage investment in organic growth, which often delivers better returns than acquiring a new independent platform.
Proactive:
How has CORD allocated capital to mitigate the current challenging macroeconomic environment?
Steven Marshall:
We anticipated rising interest rates four years ago. So we chose to invest in cash-generating businesses with strong yields. An alternative might have been investing in capital-intensive businesses that couldn't cover their dividend — we didn’t want that.
We invested in CRA and Emitel — both are generating strong cash flow. Our dividend, just under 5%, is covered 1.8 times by free cash flow.
Also, we were fortunate to invest in Poland and the Czech Republic, two of the fastest-growing economies in Europe. They're growing faster than the UK and most of Western Europe and are expected to continue doing so. That gives us a good buffer against rising rates.
Proactive:
Where will CORD look to deploy capital for the remainder of 2025?
Steven Marshall:
We've always committed to a progressive dividend. Right now, that’s just under 5% if you buy shares today. We plan to continue increasing it over time. I don't think we'll do much more buyback right now, because there are great opportunities in organic growth.
In Prague and Warsaw, both companies are building out distributed antenna broadband (DAB) networks for radio, which will grow revenues. There are also opportunities to expand our data centre business and build more mobile tower networks in Poland.
We'll also look at bolt-on acquisitions that offer revenue and cost synergies. If you buy the business today, you’re probably paying just over an 8x EBITDA multiple. But bolt-ons can be acquired for a much lower multiple — making them more attractive than share buybacks.
Proactive:
Steven, thank you very much for coming in today and updating us on your progress. Great speaking with you.
Steven Marshall:
Thanks very much, Stephen.