SPK - Spark NZ

[BlackPeter]

What is the IFT dividend yield?  1.7%.  If you think SPK can pour money into data centres and still maintain their dividend, you are deluded.   That capital has to come from somewhere, and the market is telling you its going to come from shareholders pockets.

... maybe adding on that - nobody in their right mind expects IFT to make a lot of earnings from the income stream of their data centres, their renewables or any of their other investments. Like all infrastructure investments do these provide typically a very modest earnings ratio.

Infrastructure investors expect to make money from capital gains, which you get if your infrastructure has a monopoly (or quasi-monopoly) position. This is true for airports, electricity networks, large electricity generators (people don't like more power stations than required in their neighbourhood.

Data Centres on the other hand are easy to build, which means simple competition will make sure that data centres won't be an earnings bonanza - well, not for long anyway.

What's holding up the IFT share price is the reason that IFT used to be a couple of times quite cunning in buying cheap infrastructure and selling it before the market noticed that the Hype curve was about to turn down. Market thinks they keep doing that and expect them to keep living off speculation gains. No matter, whether markets expectation for IFT are justified (I don't think so) - but clearly nobody expects Spark to be as cunning as IFT used to be, though - they have been good in selling of their mobile towers, haven't they?

Anyway - market does not seem to rate Sparks ability to exploit the bigger fool theory (i.e. selling stuff before the buyers notice they have been cheated) as a constant income stream for Spark, which leaves them in markets view sitting on a shrinking Telecom income combined with constantly rising maintenance and power costs for their data centres. That's the reason the SP keeps dropping (next to the usual games around index exclusion).

[LoungeLizard]

What is the IFT dividend yield?  1.7%.  If you think SPK can pour money into data centres and still maintain their dividend, you are deluded.   That capital has to come from somewhere, and the market is telling you its going to come from shareholders pockets.

I didn't say that Spark will maintain their dividend - I'm on record in saying that it may have to be cut (although that is not just because of their investment in data-centres).

 What I am saying is that Sparks investment in data-centres should make money down-the-line,  if they execute their plan well enough, just as they have for IFT,  who have been in the business longer. You seem to think that any investment in data centres is, of itself, a bad investment, because you don't think data-centres inherently make money. That just isn't the case, now, or certainly in a few years time, when data needs are going to go through the roof due to AI / cloud technology. If data centres aren't considered a good investment why has IFT's CDC gone up in value my nearly $800m in just the last year alone?

Anyway, we'll see who is right in a few years time. There are some people (you may be one of them) who are inherently against ANY cut in dividend (which in Sparks case hasn't actually happened yet) -  even if the business is using those funds to invest in new technology. I recall SKY being the darling of the market, paying huge special dividends, whilst refusing to believe that streaming technology was the future. That head-in the sand, short-term thinking didn't ultimately work well for the dividend obsessed shareholders did it?

[Breezy]

What is the IFT dividend yield?  1.7%.  If you think SPK can pour money into data centres and still maintain their dividend, you are deluded.   That capital has to come from somewhere, and the market is telling you its going to come from shareholders pockets.

SPK exists to pay dividends, it will pay the max it can for as long as its exists, the market was wrong with CNU and I'd suggest it will be proven wrong here as well over the longer term. Anyway I'm picking a drop to 20c next year which I'm quite happy with.

[Basil]

They should be able to fully impute a 20 cent dividend, (75% imputation credits apply at the current level).
20 cents fully imputed = 20/0.72 = 27.78 cps gross.  Choose what you think is an appropriate gross return.
10% suggests fair value = $2.78
9% suggests fair value = $3.08
The market at $2.99, in my opinion is saying it is deeply skeptical about future growth in earnings and expecting a dividend cut to about the level being discussed which would reflect a gross yield of 27.78 / 299 = 9.29%.

[Breezy]

Love the Snoop dogs work on SPK on the other channel, his last paragraph of his last post (#2778) nailed it for me.
This talk of a dividend trap is just scaremongering and premature at this point in time and the dividend will still be good regardless.

[Basil]

I think Ferg has made some outstanding posts on SPK.  He's a qualified accountant and from what I have seen I think he does some exceptionally well considered work.  I have no idea what the other dog on the other channel does for a living but he has cost me money before, so this Beagle has learned not to follow him without doing his own comprehensive sniffing first.  The way I see it, if it exits the MSCI at the end of November there's only one way it will logically go between now and then and that's about all you need to know for now, other than to remember KW's sage advice in her signature line, "Don't drink and buy in a downtrend, you bloody idiot".  The way I see it, it could be worth getting some as a dividend yield investment, after, or as its being smashed down by the international investors during MSCI exit selling.  Put a ring around the date 29 November in your diary.  The closing match session on that day could be very interesting.

[KW]

You seem to think that any investment in data centres is, of itself, a bad investment, because you don't think data-centres inherently make money. That just isn't the case, now, or certainly in a few years time, when data needs are going to go through the roof due to AI / cloud technology. If data centres aren't considered a good investment why has IFT's CDC gone up in value my nearly $800m in just the last year alone?

Anyway, we'll see who is right in a few years time.

I spent most of my working life working for telcos - including Spark (or Telecom as I still call it).  I have literally BUILT a data centre for a large international IT services company.  But go on, tell me how I dont understand the data centre market 

Yesterdays data centres are not the same as tomorrow's data centres.  For starters, they are going nuclear.  What expertise does Telstra, or even NZ for that matter, have in nuclear energy?  You think they are going to run these things off the standard grid?  LOL.
https://www.interest.co.nz/technology/130316/aws-latest-go-nuclear-big-ai-powered-anti-harriswalz-bot-network-mapped-out-and

[LoungeLizard]

I spent most of my working life working for telcos - including Spark (or Telecom as I still call it).  I have literally BUILT a data centre for a large international IT services company.  But go on, tell me how I dont understand the data centre market 

Yesterdays data centres are not the same as tomorrow's data centres.  For starters, they are going nuclear.  What expertise does Telstra, or even NZ for that matter, have in nuclear energy?  You think they are going to run these things off the standard grid?  LOL.
https://www.interest.co.nz/technology/130316/aws-latest-go-nuclear-big-ai-powered-anti-harriswalz-bot-network-mapped-out-and

I am saying that your understanding of the future of data centres is different to mine. No need to personalise the discussion.

Datacentres are not going nuclear, not in any timeframe that will bother the average investor. Google won't  even receive their reactors until 2035, let alone implement. Then there's all the red tape and environmental concerns to negotiate which will take years, even if approval is given, which to my mind is doubtful.
Anyway, it's all academic - NZ's information requirements will be easily served by the hyper scale datacentres in place and production. And then there's the little matter of NZ's non-nuclear policy...

The sensible discussion around datacentres is the use of renewables to take the demand off the grid - the same discussion we're having for industry and the economy in general. In that regard both IFT and Spark are on the ball.

[Ferg]

I have no idea what the other dog on the other channel does for a living but he has cost me money before, so this Beagle has learned not to follow him without doing his own comprehensive sniffing first.

Thanks Basil

Very wise to do your own research.  Relying on random posters on the internet puts one at risk of things like invented definitions, very subtle qualifications, lies by omission and somewhat convincing arguments that state black is white. Plus we all prone to making genuine mistakes.

Caveat emptor!

Obviously people are hurting with Spark right now (been there, done that) and that can result in emotional exchanges which are best avoided.  But I would not want people to rely on half baked analyses that are focussing on the wrong thing for their investment decisions.  So I am happy to put up statements of fact that wrap some context around others analyses.  I also recommend investors have a healthy scepticism for Management BS (been there, seen and done that!).

But much like the tide or the seasons, Spark will turn at some point.  I predict they will continue to crank out reliable dividends, but at what rate?  I wouldn't assume any business can pay dividends partially funded by debt ad infinitum.  That's not saying how to run a business...that's common sense!  And selling the family silver once in a while to prop up equity and/or the dividend is also not good practice IMO.

DYOR 

[Breezy]

As pointed out on the other channel this whole index thing could be overblown, it could simply be moving furniture from one room in the house to another room in the same house at the end of the day. Would love to see some big players get a severe burning out of this one along with shorters.

[LoungeLizard]

As pointed out on the other channel this whole index thing could be overblown, it could simply be moving furniture from one room in the house to another room in the same house at the end of the day. Would love to see some big players get a severe burning out of this one along with shorters.

Yes, me too. It isn't even a dead cert that Spark will drop out of the index. Wouldn't it be so sad for the shorters if it stayed in 

[winner (n)]

 Take of woe and misery       

First profit downgrade this year


https://announcements.nzx.com/attachment/430676.pdf 

[Left Field]

Yep no surprises here....... SPK downgrade and dividend reduction.
 
 • EBITDAI1 guidance2 updated from $1,165-$1,220 million to $1,120-$1,180 million
 • Capex3 guidance updated from ~$460-$480 million to ~$415-$435 million
 • Dividend guidance updated from 27.5 cents per share to 25 cents per share, 75% imputed
 • Review of non-core assets underway, with decision made to divest Spark's shareholding in Connexa
 • SPK-26 Operate Programme expanded to deliver materially higher cost reductions over multi-year period

It will be interesting to see what other channel poster Snoopy makes of this. 

I've been following his analysis and see it as a classic case of holders bias. While Snoopy is excellent at analysing historic FA, IMO he struggles to lift his head to see the horizon ahead.

[Breezy]

Take ofwoes       

First profit downgrade this year


https://announcements.nzx.com/attachment/430676.pdf 

Pretty soft downgrade and divvy 25c although only 75% imputed, still a stout divvy and more than I thought (20 cents was my estimate) As a retirement hold for my wife and myself we look through this period.
Reading through their plan to drive future value , it all looks pretty much on the right track kinda stuff to me.

[winner (n)]

Divie likely to be 25 cents 75% imputed

That's a huge pay cut from 38.2 cents gross F24 ...16% less