SPK - Spark NZ

[winner (n)]

NBR had an article about Spark shooting itself in the foot about its recent $300m buyback

Good article but not as good as this Comment -


THURSTON-WAFFLES
FRI, 01 NOV 2024 - 7:46:55AM

The Slaughterhouse that is Spark is a very interesting exercise in watching Retail (Dumb) Money transfer wealth to Institutional (Smart) Money. Consistently, for many months now, Spark has been in the Top 10 (and usually #1) buys for Jarden clients as the share privce continually withers.

Meanwhile, instos, sniffing the rapidly detiorating balance sheet situation and knowing it will drop out of MSCI indices, have been shorting the bejeezus out of it. The psychological show is also on full display on forums such as Stock Talk and Sharetrader.

No doubt there will be continued declines, especially with the latest downgrade (first of many?) into the MSCI rebalance in late November, all while retail continue to engage in a classic dividend trap scenario and hoover up "cheap" shares.

Data centres are not cheap (look at the recent NXT capital raising to fund further centres) and the scale on which Spark is entering the market is already as an also, also ran.

More debt + selling the family silver + declining key balance sheet numbers = vicious cycle.

Don't drink and buy shares in a downtrend, folks
Reply

[Breezy]

NBR had an article about Spark shooting itself in the foot about its recent $300m buyback

Good article but not as good as this Comment -


THURSTON-WAFFLES
FRI, 01 NOV 2024 - 7:46:55AM

The Slaughterhouse that is Spark is a very interesting exercise in watching Retail (Dumb) Money transfer wealth to Institutional (Smart) Money. Consistently, for many months now, Spark has been in the Top 10 (and usually #1) buys for Jarden clients as the share privce continually withers.

Meanwhile, instos, sniffing the rapidly detiorating balance sheet situation and knowing it will drop out of MSCI indices, have been shorting the bejeezus out of it. The psychological show is also on full display on forums such as Stock Talk and Sharetrader.

No doubt there will be continued declines, especially with the latest downgrade (first of many?) into the MSCI rebalance in late November, all while retail continue to engage in a classic dividend trap scenario and hoover up "cheap" shares.

Data centres are not cheap (look at the recent NXT capital raising to fund further centres) and the scale on which Spark is entering the market is already as an also, also ran.

More debt + selling the family silver + declining key balance sheet numbers = vicious cycle.

Don't drink and buy shares in a downtrend, folks
Reply

I wonder what name this guy/gal uses on here or on ST, I reckon i would have a good chance at picking a match. Always good when Insto holdings decrease in size and retail increases. PS-Instos losing heaps at the moment selling so not really that smart after all, they were pretty dumb with CNU back in the day.

[KW]

NBR had an article about Spark shooting itself in the foot about its recent $300m buyback

Good article but not as good as this Comment -


THURSTON-WAFFLES
FRI, 01 NOV 2024 - 7:46:55AM

The Slaughterhouse that is Spark is a very interesting exercise in watching Retail (Dumb) Money transfer wealth to Institutional (Smart) Money. Consistently, for many months now, Spark has been in the Top 10 (and usually #1) buys for Jarden clients as the share privce continually withers.

Meanwhile, instos, sniffing the rapidly detiorating balance sheet situation and knowing it will drop out of MSCI indices, have been shorting the bejeezus out of it. The psychological show is also on full display on forums such as Stock Talk and Sharetrader.

No doubt there will be continued declines, especially with the latest downgrade (first of many?) into the MSCI rebalance in late November, all while retail continue to engage in a classic dividend trap scenario and hoover up "cheap" shares.

Data centres are not cheap (look at the recent NXT capital raising to fund further centres) and the scale on which Spark is entering the market is already as an also, also ran.

More debt + selling the family silver + declining key balance sheet numbers = vicious cycle.

Don't drink and buy shares in a downtrend, folks
Reply

Hey, who's stolen my tag line?  I need to trademark that I think!

[KW]

Sometimes its interesting to look at really long term trends.  The 10 year trend for SPK broke down in May.

You cannot view this attachment.

[Ferg]

I wonder what name this guy/gal uses on here or on ST, I reckon i would have a good chance at picking a match. Always good when Insto holdings decrease in size and retail increases. PS-Instos losing heaps at the moment selling so not really that smart after all, they were pretty dumb with CNU back in the day.

Definitely not me but the author makes some good points.  The dividend is unsustainable and you can only load up on so much debt for no discernible benefit before it needs to be addressed.

[Breezy]

Definitely not me but the author makes some good points.  The dividend is unsustainable and you can only load up on so much debt for no discernible benefit before it needs to be addressed.

Well yes thats why its been trimmed but I expect things to rectify themselves with the measures they have underway. In the meantime still a good divvy.

[Ferg]

I expect things to rectify themselves with the measures they have underway.

Past behaviour is a good indicator of future behaviour. Spark took measures by selling a majority stake in Connexa and they had a chance to transform debts & the Balance Sheet but they blew it. Now they are looking at selling the rest of Connexa and possibly the Southern Cross Cable. This looks like selling the family silverware....the SCC is akin to a 'gateway' or a 'toll booth'.....IMO something that should not be sold. Maybe Directors and Management will do a better job this time.....but I doubt it given there have been no significant exec changes, other than the CFO.

In the meantime still a good divvy.

For now.  Until it gets cut again.  It needs to be lower than cash earnings so that future shareholders are not saddled with debts used to prop up dividends for current shareholders, as Spark has been doing for some time.

[Breezy]

Past behaviour is a good indicator of future behaviour. Spark took measures by selling a majority stake in Connexa and they had a chance to transform debts & the Balance Sheet but they blew it. Now they are looking at selling the rest of Connexa and possibly the Southern Cross Cable. This looks like selling the family silverware....the SCC is akin to a 'gateway' or a 'toll booth'.....IMO something that should not be sold. Maybe Directors and Management will do a better job this time.....but I doubt it given there have been no significant exec changes, other than the CFO.
For now.  Until it gets cut again.  It needs to be lower than cash earnings so that future shareholders are not saddled with debts used to prop up dividends for current shareholders, as Spark has been doing for some time.

Those assetts are classified as non strategic by the company. The share buy back was not the right choice at the time so a lesson to learn there.
Even with another 5c off the divvy it would still be okay, I expect this as the worst case scenario but it may or may not occur. As a 10 yr hold the current period matters little, I look through the next couple or so yrs as I should have done with CNU all those yrs ago, lesson learned.

[Basil]

https://www.harbourasset.co.nz/research-and-commentary/harbour-navigator-dividend-illusion/?_cldee=BmyXHlgYGdOgQdegYHJhn9gArF7ancRpM2IpypyIBMVrt5M6qsDohRMyL9_TYG8l&recipientid=contact-103efa936911cd3da9415a8232cf7847-a96d005841214fdbab914f15eb4febb8&esid=02871eda-0398-ef11-8a68-000d3aca7b91

[BlackPeter]

https://www.harbourasset.co.nz/research-and-commentary/harbour-navigator-dividend-illusion/?_cldee=BmyXHlgYGdOgQdegYHJhn9gArF7ancRpM2IpypyIBMVrt5M6qsDohRMyL9_TYG8l&recipientid=contact-103efa936911cd3da9415a8232cf7847-a96d005841214fdbab914f15eb4febb8&esid=02871eda-0398-ef11-8a68-000d3aca7b91

Looks like harbour is reading this thread and following the more sensible posts ;

[Breezy]

Looks like harbour is reading this thread and following the more sensible posts ;

Sensible posts only prove themselves to be so over time, until then they are just speculation like the others.

[Basil]

Putting all that together, EPS has a negative CAGR of -1.6% per annum over the past 10 years.  This will flip to being positive if EPS in 2025 exceeds 20c.  Let's say SPK can get back to 22c per share, would it qualify as a 'no growth' company?

Is it time to consider buying in towards the end of the month when its exits the MSCI index ? (I believe this occurs on 29 Nov but DYOR on that).
I missed this question from Ferg's extensive high-quality post some time back.
I think the answer is no, if a company has a ten-year CAGR in eps of negative 1.6% that suggests a systemic problem with losing market share and / or margin contraction or inability to recover increased costs.  Average broker forecast is that eps will not get back to 22 cps any year soon.  I will stick with the time proven Ben Graham no growth PE of 8.5, adjusted for lower equity risk premiums these days = 10, but using my own value filter of adding or subtracting 1 PE for every 1% projected move in eps in the years ahead, on past history that suggests a fair PE of 10-1.6 = just 8.4 times estimated FY25 eps.
https://www.marketscreener.com/quote/stock/SPARK-NEW-ZEALAND-LIMITED-6492600/finances/
I note the average earnings of 9 analysts for the next 3 years is 18.63cps, 19.69 and 21.13 cps, all lower than the 10-year average of 23 cps that Ferg has worked out.

I'm staying well away.  Even after the recent share price correction, at $2.88 a forward PE of 15.5 makes no sense whatsoever to me for a company that is at very best, a no growth company but one for which a solid argument can be made that, especially in real inflation adjusted terms, earnings per share are in systemic decline.   

[Breezy]

Is it time to consider buying in towards the end of the month when its exits the MSCI index ? (I believe this occurs on 29 Nov but DYOR on that).
I missed this question from Ferg's extensive high-quality post some time back.
I think the answer is no, if a company has a ten-year CAGR in eps of negative 1.6% that suggests a systemic problem with losing market share and / or margin contraction or inability to recover increased costs.  Average broker forecast is that eps will not get back to 22 cps any year soon.  I will stick with the time proven Ben Graham no growth PE of 8.5, adjusted for lower equity risk premiums these days = 10, but using my own value filter of adding or subtracting 1 PE for every 1% projected move in eps in the years ahead, on past history that suggests a fair PE of 10-1.6 = just 8.4 times estimated FY25 eps.
https://www.marketscreener.com/quote/stock/SPARK-NEW-ZEALAND-LIMITED-6492600/finances/
I note the average earnings of 9 analysts for the next 3 years is 18.63cps, 19.69 and 21.13 cps, all lower than the 10-year average of 23 cps that Ferg has worked out.

I'm staying well away.  Even after the recent share price correction, at $2.88 a forward PE of 15.5 makes no sense whatsoever to me for a company that is at very best, a no growth company but one for which a solid argument can be made that, especially in real inflation adjusted terms, earnings per share are in systemic decline.   

Yes best you stay well away and leave it to us that have been involved with the stock for more than a decade and will do so for the next decade.

[Breezy]

I see your above post as just another veiled personal attack (Your personal vendetta started on the other channel re discussions on covid and climate change and you have kept it going, its not acceptable in any way) SPK and CNU were once part of the same company and are still in the same sector so it is apples with apples. By the way I don't have any more money now than an average person of my age would have.

[LoungeLizard]

For all the arguments against Spark presented here, they are basically a replication of the arguments by analysts and rating agencies. But - and here's the rub -  even after those agencies have blasted Spark for their debt, badly managed buyback, dividend cut etc, the average target price of all the major agencies is $4.00 per share.

So if one is going to quote agencies' opinions about earnings per share etc, then why not follow through with what those same agencies are saying about the share price? Otherwise it's just cherry picking.
Regardless of the well-trodden arguments, the fact remains the current SP doesn't bare any resemblance to fair value - the short-term TA  may look bad but it's a historically anomaly and with a longer lens than some are using, it demonstrates just how oversold (and shorted) Spark has become.

And as far as "smart" or "dumb" money is concerned, the absolute dumbest thing to do is to give in to the fear (and the manipulations of a few institutions) and sell low. The smart thing is to let those people sell, and if one has the money (and nerve) to buy where there is value, even if it means going against the trend. That, after all, is what people like Buffet would do.

I had thought that $3 might see the end of the sell-off, but the dumb money has no limits it seems. The MSCI index thing is a red herring I believe, designed to push the price lower. I'm continuing to add, taking a 9% return in the meantime.