SPK - Spark NZ

[winner (n)]

No worries for Spark. NBR has a big headline

Spark's shine dims but data centres could light a new path

[LoungeLizard]

No worries for Spark. NBR has a big headline

Spark's shine dims but data centres could light a new path

That's a red rag to a few bulls. Or should it be bears?

[Ferg]

For all the arguments against Spark presented here, they are basically a replication of the arguments by analysts and rating agencies.

I can't recall seeing any analyst reports that pre-date what I said in my posts back on 29/30 September, other than post #159 by KW on 21 September.  I don't subscribe to any sort of analyst service or website so that was original work in my search for a good dividend stock.  The analysts have been replicating and regurgitating the arguments put up by me and KW....and some media commentators are making reference to the stocktalk & sharetrader websites so maybe we should be getting some credit.....

[entrep]

https://www.downtoearth.kiwi/post/is-lack-of-diversity-of-its-leadership-one-reason-for-spark-s-plummeting-share-price-and-performance

[850man]

How can the Chair and CEO still be there after overseeing the company's value drop by circa $5 billion in under 12 months?

[LoungeLizard]

I can't recall seeing any analyst reports that pre-date what I said in my posts back on 29/30 September, other than post #159 by KW on 21 September.  I don't subscribe to any sort of analyst service or website so that was original work in my search for a good dividend stock.  The analysts have been replicating and regurgitating the arguments put up by me and KW....and some media commentators are making reference to the stocktalk & sharetrader websites so maybe we should be getting some credit.....

Fair enough. You might have been ahead of the game there Ferg, and all credit to you. Myy point is though, that if the agencies are now detailing some of the problems with Spark you have foretold, but still unanimously agree that it's a $4+ stock, then either they are all wrong in their valuation, or more likely, what we are seeing is just an over-reaction or possibly a short-selling campaign.

This from Morningstar, who I find more objective than other industry-connected rating agencies. It's just a synopsis free on ASB trading platform. Their valuation, despite the critique, is $4.30 per share.


Event analysis

Spark New Zealand: A Dull Outlook

We cut our fair value estimate for Spark by 7% to NZD 4.30 per share, or AUD 3.90 at current exchange rates. This follows the 6% reduction just two months ago, which reflected structural cost issues in the group's IT units. This time around, the cause for our downgrade is more sinister: deteriorating revenue trends in the core mobile unit—the engine that drives earnings and cash flow for the whole group.

We appreciate that the economic conditions in New Zealand are tough. However, the abrupt downturn in management's outlook for fiscal 2025 mobile service revenue, from 3% just two months ago to now "largely flat," is concerning. The forecast flat mobile service revenue outcome in fiscal 2025 would be the first since the covid-19 year of fiscal 2021 and in sharp contrast to the average 5% growth reliably delivered since fiscal 2018, excluding the pandemic year. Competition is heating up much faster than expected for connections and average revenue per subscriber. Even management is unsure whether Spark is losing market share in subscribers or revenue.

As such, we reduce our earnings before interest, tax, depreciation, amortization, and investment income forecasts by around 5%, primarily due to cuts to our mobile revenue expectations. We also further revise our margin assumptions for IT-related units to reflect the accelerating product mix shift from the private cloud and to the lower-margin public cloud. Critically, we reduce our dividends per share forecast by around 10%, with our fiscal 2025 projection of NZD 0.25, 75% imputed, in line with management's guidance.

[BlackPeter]

How can the Chair and CEO still be there after overseeing the company's value drop by circa $5 billion in under 12 months?

This is something you should ask the holders, but listening to some of the posts here - they seem to be quite happy with the companies performance, so - why get rid of the winning team which brought them there?

[Ferg]

Fair enough. You might have been ahead of the game there Ferg, and all credit to you. Myy point is though, that if the agencies, as you say, are now detailing some of the problems with Spark you have foretold, but still unanimously agree that it's a $4+ stock, then either they are all wrong in their valuation, or more likely, what we are seeing is just an over-reaction or possibly a short-selling campaign.

Thanks for that.  Although it seems the institutional part of Mr Market had figured that out with the intense selling pressure, but kept that knowledge to themselves while selling to retail clients.

Fair point but maybe it is all of the above.  They may be wrong with their valuation, and it may be an over-reaction and it may be a short selling campaign (or any combination thereof).  How can the 1st be true in light of the other 2?  Ask yourself who benefits from a higher TP.  Maybe the very analysts trying to exit their own positions before others...perhaps?  That is cynical speculation by me but when you have other learned posters detailing their valuation methods (being EPS x some factor) and coming up short of the collective TP, that makes me wonder how/why analysts have a high TP relative to the SP.  Are they transparent with their TP methods so we can scrutinise their inputs?  If not, then I wouldn't place any value on a TP that does not disclose how it was derived.

I have no doubt this will turn at some point, but not today and possibly not for another 12 months.  I will wait for the green shoots and good news cycle before putting any $$ into Spark but I will continue watching.

But this line is concerning:

Even management is unsure whether Spark is losing market share in subscribers or revenue.

My analysis was centred more on the Balance Sheet, dividend sustainability and debts which are more structural in nature...that line from Morningstar points to operational issues.  If mobile is the engine of the business, then they should have multiple fingers on the pulse...are they saying they don't?  But taking on so much debt for no EPS benefit means that when the worm turns on operations, then it bites the business twice as hard given there are fewer options for carrying a bad year or 2 on the Balance Sheet.  Although they may get some relief from falling interest rates....but I view that as the silver lining.

[BlackPeter]

Fair enough. You might have been ahead of the game there Ferg, and all credit to you. Myy point is though, that if the agencies are now detailing some of the problems with Spark you have foretold, but still unanimously agree that it's a $4+ stock, then either they are all wrong in their valuation, or more likely, what we are seeing is just an over-reaction or possibly a short-selling campaign.

...

Come on - you mean you didn't notice yet that analysts forecasts are absolutely meaningless for - well, lets say uncorrelated to - the actual price a stock reaches after a year (for the one year consensus)? The only value forecasts do have is that they provide some input into the markets mood. Always good to understand the mood.

Some analysts do add value with their analysis by accurately describing the past. Some might see more than others, but it is at best good detective work they provide. No soothsaying. It is possible to learn from what they wrote. However - analysts are just human beings as well, and no human is able to predict future stock prices. Which means, if you would do an analysis of their forecasts (which you clearly didn't do), you would know that price forecasts are absolutely meaningless. They are the output of some models determining a theoretical value of some stock under a lot of working assumptions and afterwards corrected with the SP of the day.

Ever noticed that forecasts tend to follow the stock price (Have a look into marketscreener)? Ever wondered why?

[Ferg]

https://www.downtoearth.kiwi/post/is-lack-of-diversity-of-its-leadership-one-reason-for-spark-s-plummeting-share-price-and-performance

Thanks for that Entrep.  A boardroom full of BCom and LLB degrees is not diverse.  More engineers and technically minded people would improve diversity.  It's a shame the proponents of diversity don't focus on this aspect; instead they focus on other factors.

Seeing the qualifications and experience of the Chair and CEO makes me wonder if the CFO was the fall guy for the dismal share buyback.  Or maybe he was the only honourable one?  Interesting thought experiment...

[LoungeLizard]

Come on - you mean you didn't notice yet that analysts forecasts are absolutely meaningless for - well, lets say uncorrelated to - the actual price a stock reaches after a year (for the one year consensus)? The only value forecasts do have is that they provide some input into the markets mood. Always good to understand the mood.

Some analysts do add value with their analysis by accurately describing the past. Some might see more than others, but it is at best good detective work they provide. No soothsaying. It is possible to learn from what they wrote. However - analysts are just human beings as well, and no human is able to predict future stock prices. Which means, if you would do an analysis of their forecasts (which you clearly didn't do), you would know that price forecasts are absolutely meaningless. They are the output of some models determining a theoretical value of some stock under a lot of working assumptions and afterwards corrected with the SP of the day.

Ever noticed that forecasts tend to follow the stock price (Have a look into marketscreener)? Ever wondered why?

No one can predict the future you say, but isn't that exactly what we are all trying to do here, including yourself? Isn't that what Buffet is doing (usually accurately) when he puts money, ahead of "the market" into certain business's and industries. Investing is ALL about predicting the future -  succesful investing is doing it well.

I'm the last one who will invest on the basis of what an analyst might say, particularly the likes of Jardens who work with and invest in the very business's that they are "independently" analysing. What I am interested in is value - and how various parties using the same set of data can come to different conclusions. My own feeling is that the market, although always right in the sense that it states what the price actually is, is often wrong in assessing true value. This can be for a 1001 reasons, none of which have anything to do with value. That's the skill of an investor - to separate the noise, the sentiment, the gaming, from the facts that indicate value and, ultimately, price.

 

[BlackPeter]

No one can predict the future you say, but isn't that exactly what we are all trying to do here, including yourself? Isn't that what Buffet is doing (usually accurately) when he puts money, ahead of "the market" into certain business's and industries. Investing is ALL about predicting the future -  succesful investing is doing it well.

...
 

I think we had this discussion before. so just short for anybody new to it. Investing is NOT about predicting the future, because no mortal is able to do that. Investing is about picking the best possible vessel (company) and the most experienced team to navigate an unknown future.

If you pick a good quality vessel with an experienced and proven team you are more likely to succeed with your mission (safeguard and increase your capital) than if you pick a clapped out vessel run by a bunch of inepts. However - nobody can predict beforehand where your vessel will end up, and whether it will get into a hurricane or be shot at by terrorists or pirates. Could happen to both vessels, and both could go down or survive, couldn't they? However - statistically seen you know that the chances of the good vessel with the experienced crew are better to complete their mission than the chances of the alternative.

That's all. This is not about predicting the future, it is improving your odds to have a favourable future.

[Ferg]

Yeah I'm calling bollocks on that - investing is about predicting the future.  I predict that in future Spark will have to reduce their debts and this will become a hot topic.  I predict they will do this by reducing the dividend and capex for years beyond the current and next fiscal year.  By examining the past we can predict the required corrective actions, and how that impacts our investment and future returns.  I think where LL and I differ on this is the SP reaction to these predicted actions.

[Basil]

Agree with Ferg. eps of 18 cps and dps of 25 cps means the business is paying more than it can sustain.

HGH has been paying more than the business model it runs can sustain and their share price is in the toilet too.

[winner (n)]

Agree with Ferg. eps of 18 cps and dps of 25 cps means the business is paying more than it can sustain.

HGH has been paying more than the business model it runs can sustain and their share price is in the toilet too.

Could say Heartland had capital raises to pay divies ....Spark ain't done that ...yet