SPK - Spark NZ

[LoungeLizard]

I agree with Ferg's analysis of the current situation and even the predictions around Sparks future actions, but as noted, we differ in where the SP should be, despite all of that. I remain convinced that the current level is grossly undervaluing Spark's worth and once the MSCI index issue (and the corresponding shorting) are settled I expect the SP to start moving quite quickly (12 months) back to $4. That's my prediction for what it's worth. 

[Basil]

I expect the SP to start moving quite quickly (12 months) back to $4. That's my prediction for what it's worth.

$4 in 12 months = 20.4 times forward earnings for FY26 based on the average of 9 analysts current expectations.
That for a company with a 10 year CARG in eps of minus 1.6%.  Hmmm...good luck with that.  For the life of me I don't know how the analysts get to their $4 target price.  I guess they are expecting a heck of a lot of future growth from Spark's datacenter.  That's got to be funded somehow, more debt, surely not ?...so an equity raise looks likely.  Just as well we know these sort of new capital investments are always eps accretive right from the start eh 
How's Next DC getting on ?

[KW]

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...

Its not the qualifications that is the issue, its the lack of telco experience and the ability to understand technology and customer usage changes coming down the line.  You dont go from selling beer to selling mobile plans.  I have both a BCom and a LLB, no engineering qualifications, yet my last telco job was advising the C-Suite as to what their future strategy should be.  They however, chose not to listen to me.  This is has been a repetitive experience in my career - those at the top do not listen to those who are advising them. 

Wee anecdote - I told the Telstra CEO and VP of Mobile that they needed to start selling mobile plans that were priced based on data allocations, not call minutes.  They said no way.  About a year later Optus launched their mobile plans priced on data inclusions, which meant Telstra was then 18 months behind the eight ball in catching up (as it takes that long to build something within Telstra, another problem that plagued it).  Of course, these days pretty much every mobile plan is based around data allowances, but instead of being first in market and a leader, they became a last to market follower, losing a lot of subscribers in the intermittent period.  I 100% guarantee that Spark is exactly the same.

Another anecdote - having a lot of engineers doesnt help either.  They cant see past the engineering, and do not understand the use case of the technology.  The Australian NBN Co was set up with a ton of ex-Telstra engineers.  One of their top product people rang me and asked me what was going to be the killer app for the NBN, because they couldnt understand why anyone would want a full fibre to the home product.  "Who would ever use that much bandwidth?" he asked.  I said it will be video.  They carried on building a NBN based on the old copper network, and the rest as they say, is history.

[KW]

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.

They cant reduce their debt.  They will have to borrow more.  Where do you think the money for building data centres is going to come from?  Those things are EXPENSIVE.

Either that or a capital raise.  Or cancel the dividend entirely.

[LoungeLizard]

They cant reduce their debt.  They will have to borrow more.  Where do you think the money for building data centres is going to come from?  Those things are EXPENSIVE.

Either that or a capital raise.  Or cancel the dividend entirely.

You're forgetting that Spark have committed to selling their stake in Connexa which apparently is valued at $275m and is not a strategic asset for them. That might help keep the wolves from the door for a while.

[LoungeLizard]

$4 in 12 months = 20.4 times forward earnings for FY26 based on the average of 9 analysts current expectations.
That for a company with a 10 year CARG in eps of minus 1.6%.  Hmmm...good luck with that.  For the life of me I don't know how the analysts get to their $4 target price.  I guess they are expecting a heck of a lot of future growth from Spark's datacenter.  That's got to be funded somehow, more debt, surely not ?...so an equity raise looks likely.  Just as well we know these sort of new capital investments are always eps accretive right from the start eh 
How's Next DC getting on ?

Well, that's the interesting thing. Analysts apply the same methodology and knowledge of Sparks problems and the average still comes up with $4. Who's right or wrong? I'm not a fan of just using PE projections to determine SP - they so often don't take into account the macroeconomic picture. My feeling - gut instinct mainly - is that there is no basis for a 50% decline in Sparks SP. It looks and feels like a temporary blip, which happen all the time, up and down. Over time I expect Spark to gravitate upwards to it's "natural" SP point of $4 initially, and $5 in the longer term.

[Basil]

Well hat tip to you, you got HGH right so it will be interesting to see how you get on with this one.  Best of luck with it.

[Red Baron]

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.

Agreed BUT did you look at ze composition of ze board outside of ze Chair and CEO?

-----------------
Alison Barass:  BSc from University of Southampton, Diploma in Marketing University of Auckland.  Fast Moving Consumer Goods sector experience.
David Havercroft: 35 year career in technology, including IBM Asia Pacific, Cable & Wireless and BT
Gordon MacLeod:  Finance director of Cambridge Science park start up and following that a 15 year tenure at Ryman's.
Lisa Nelson:   Former managing director of M12 Microsoft's venture fund, and before that several other senior roles at Microsoft (lives in Seattle USA). Certified Public accountant
Sheridan Broadbent::  Career spanning telecommunications, ICT , infrastructure and energy.  BCom from University of Auckland.
Warwick Bray:   Four decades of telecommunications industry experience, mostly with Telstra.     Holds a BSc and MBA from the University of Melbourne
-----------------

Not another lawyer among them.    And even ze BCom's have many years of telecommunications experience in zheir bones.

Does the vull board tick ze diversity box?   I vould say 'yes'.

RB

[LoungeLizard]

Well hat tip to you, you got HGH right so it will be interesting to see how you get on with this one.  Best of luck with it.

Cheers Basil. I'll be the first to hold my hand up if Spark are $2.50 or even $3.00 in 12-18 months time. That's the time frame I'm happy to keep holding for and even acquire more. After that, well it may be that Spark does have structural problems that might take years to correct, in which case you have to know when to wave the white flag.
That's the interesting thing about this investing lark - everyone's right until the future proves them wrong. We're not there yet with Spark - this current downturn could be the start of an endemic decline like WHS or FBU or countless others, or it could just be a temporary blip that presented a massive buying opportunity like  CNU. Time will tell which one it is.   

[entrep]

Deletion confirmed.

Now let the games begin

https://app2.msci.com/eqb/gimi/stdindex/MSCI_Nov24_STPublicList.pdf

[LoungeLizard]

Deletion confirmed.

Now let the games begin

https://app2.msci.com/eqb/gimi/stdindex/MSCI_Nov24_STPublicList.pdf

All these index's and the shorting that goes on around dropping out of one and entering another, is above my pay grade. Is the SP going to go up or down? No-one really knows, but it sure as hell has nothing to do with Sparks value or performance in the long run. My strategy is just to ignore it all.

[entrep]

All these index's and the shorting that goes on around dropping out of one and entering another, is above my pay grade. Is the SP going to go up or down? No-one really knows, but it sure as hell has nothing to do with Sparks value or performance in the long run. My strategy is just to ignore it all.

This is what is expected:

When Spark NZX is removed from the MSCI index, it often triggers a selloff as institutional investors and index-tracking funds, like ETFs, adjust their portfolios to reflect the index changes. Here's how the timeline for Spark NZX's exit may impact its stock price:

Announcement Date (November 6, 2024):
Following the official announcement, some investors might begin selling Spark NZX shares in anticipation of further declines. This initial response reflects expectations that index-tracking funds will be required to sell, potentially causing an early dip in the stock price.

Between Announcement and Effective Date (November 6 to November 26, 2024):
During this interval, gradual selloffs may occur as some investors preempt the index funds. However, the heaviest trading is unlikely until closer to the effective date, as index funds tend to rebalance their portfolios nearer the deadline.

Effective Date (November 26, 2024):
Significant selling pressure is anticipated around this date, as index-tracking funds need to exclude Spark NZX to align with the MSCI index changes. This concentrated rebalancing could lead to a notable decrease in the stock price.

In summary, while selling may start post-announcement, the highest volume and impact on Spark NZX's stock price is expected around the effective date (November 26, 2024). Other market dynamics may also affect the timing and scale of these movements.

[LoungeLizard]

This is what is expected:

Hmmm - " a notable decrease in SP" around the index exclusion date. Really hard to believe given the 50% drop already priced in. Also, as noted on the other site, Spark and IFT are trading places in the MSCI Global Standard Index and the MSCI Global Small Cap Index, so it's hard to tell what the overall effect is on Sparks inclusion in Indexed funds. It's not as though they are dropping out altogether - looks a bit like of a reshuffling of the same pack of cards to me.
So far no change, but maybe at the end of the day. Or tomorrow. Or never.
 

[Basil]

Change takes effect at close of trade on 25 November. Lead up to that and especially the final 15 minute match price process could be an interesting opportunity to acquire more if you believe there is still some future spark left in Spark.
https://www.nzherald.co.nz/business/index-d-day-for-spark-analyst-says-its-stock-is-way-over-sold/C4OKKO3JHRHGBKDNTJDMAGWXJU/
Paywalled.

[LoungeLizard]

Infratil down 36c on the announcement it will join the MSCI Global Standard Index, Spark up a cent on dropping out. Hmmmm...