SPK - Spark NZ

[Basil]

I reckon we should save reading the report card until after close of trade on 25 November as that's when the bulk of this change will occur.

[bulltrap]

When a stock is removed from an MSCI index, it often triggers a selloff because many institutional investors and funds that track the index (such as index funds or ETFs) are required to adjust their portfolios to mirror the changes. Here's how the timeline you provided could influence the stock's price movements:

Announcement Date (November 6, 2024):
Once the removal is officially announced, some investors may start selling the stock in anticipation of further drops, knowing that index-tracking funds will eventually be forced to sell. This could lead to an initial selloff as investors react to the news.

Between Announcement and Effective Date (November 6 to November 26, 2024):
During this period, you may see gradual selloffs by investors who want to get ahead of the index funds. However, it is unlikely to see the biggest volume of trades here because index-tracking funds typically make changes closer to the effective date.

Effective Date (November 26, 2024):
The heaviest selloff is often expected just before or on the effective date. This is because the index funds that track MSCI will need to rebalance their portfolios on or right before this date to exclude the stock from their holdings. This concentrated selling pressure could lead to the largest drop in the stock price.

In summary, while some selling may occur after the announcement, the biggest selloff is most likely to happen around the effective date (November 26, 2024). Keep in mind that other market factors can also influence the timing and extent of the selloff.

Like a good market analyst, ChatGPT says whatever sounds most plausible, and smugly makes predictions specific enough to be wrong most of the time.

Looking at the most recent MSCI Global Standard removals of NZ-based companies (all of which were demotions to Smallcap), only EBO suffered a significant price drop on removal. I'm guessing that was due to a lack of large institutional holders to make a market for the ETFs, and that SPK won't have this issue.

Interestingly, all of these had a small rally in the week following announcement. Kind of a 'sell the news' pattern, or rather buying the bad news. It'll be interesting to see if there's short covering during this time...

But after that, there's no obvious pattern for price movements. What is predictable, is huge volume on the day of removal. Expect around 150M shares to trade on the 25th, mostly at close, largely driven by ETFs offloading their excess holdings.

Sure, these index changes are a fantastic indicator of a big change in market cap, but unfortunately it's a trailing indicator.

[Basil]

there has been much discussion about how SPK has been a no growth company over the last 10 years. Well even if you add the market cap of CNU and SPK today it is less than the inflation adjusted Telecom list price of $11b (in todays dollars).

So we can actually say SPK is a no growth company for nearly 40 years? wow

Looking forward to seeing this trade on a fair no growth 'blue chip' P.E of 10. Which would give us say $2.22 sp

Interesting post from Rawz on the other channel.  I would add that analysts' expectations for FY25 are about 19 cps so you could quite reasonably say 10 x 19 = $1.90 is fair value for a no growth company.  Just as well data center investment will finally drive some eps growth...or can we be certain of that ?

[LoungeLizard]

Interesting post from Rawz on the other channel.  I would add that analysts' expectations for FY25 are about 19 cps so you could quite reasonably say 10 x 19 = $1.90 is fair value for a no growth company.  Just as well data center investment will finally drive some eps growth...or can we be certain of that ?

Are we saying then that for the last 40 years, the market valuation has been wrong? In the last ten years alone, the SP has been 2-3 times higher than what these calculations would suggest.
No growth calculations may be accurate as a technical exercise, but aren't always that helpful when translated into reality. To say that $1.90 is "fair" value for Spark, is basically saying they are un-investable, as the share price will never get that low. $1.90 ignores the weight of Sparks SP history, the high yield, and the assessment of all the agencies who say that fair value is around $4.

[Basil]

No growth calculations may be accurate as a technical exercise, but aren't always that helpful when translated into reality. To say that $1.90 is "fair" value for Spark, is basically saying they are un-investable, as the share price will never get that low. $1.90 ignores the weight of Sparks SP history, the high yield, and the assessment of all the agencies who say that fair value is around $4.

I have no idea how analysts are arriving at $4+ because the way I value stocks gives a very different answer.  When there's a major disparity between my valuation screening process and analysts I always go with my methodology. In terms of the dividend yield, you have a point there as this is obviously supporting the current share price but for how long can a company making circa 18-19 cps keep paying out 25 cps especially when they have plans for a capital-intensive data center?

[seaweed]

SPK up 10% from yearly low of $2.85 on Wed 30/10/24 at 10.02am. Very interesting with MSCI in 4 days.

[LoungeLizard]

SPK up 10% from yearly low of $2.85 on Wed 30/10/24 at 10.02am. Very interesting with MSCI in 4 days.

Yep, and on high volume too. Can't all be retail. So why would institutions be buying if the SP is supposed to crash post-MSCI? And IFT - the supposed benefactor of the index change - has dropped from over $13 to $12.35. I suppose Trumps re-election might have something to do with that, but still...

[seaweed]

Am wondering if the MSCI crowd have already started selling?

[BlackPeter]

SPK up 10% from yearly low of $2.85 on Wed 30/10/24 at 10.02am. Very interesting with MSCI in 4 days.

Hmm - I feel your pain. However - are you sure that this is how the start of an uptrend looks like?

You cannot view this attachment.

Could be as well a quite weak consolidation prior to the next down leg? Just saying ...

Anyway - all the best to holders.

[bulltrap]

But after that, there's no obvious pattern for price movements. What is predictable, is huge volume on the day of removal. Expect around 150M shares to trade on the 25th, mostly at close, largely driven by ETFs offloading their excess holdings.

SPK not so predictable as it turned out - 150M just at close, and 330M total for the day. That's more than twice previous exits, as a proportion of free float.

IFT in contrast turned over a very predictable 76M.

I suspect that SPK was heavily held in various special purpose funds, which were in addition to core index-linked holdings, but also conditional on MSCI World inclusion. Those would all have been sold.

The share price took a bit of a knock at close, and is down 3.4% day-on-day. That's also more than usual, although not as bad as EBO.

I wouldn't say SPK is out of the woods now. The lack of ongoing buy support from these funds is really going to hurt.

[LoungeLizard]

SPK has been 10c lower than today's close in recent weeks, so maybe the index fund sell-off was baked in. There might be a bit more residual selling tomorrow but now that the clever fund managers have sold at historic lows, we might see some normal trading patterns emerge.

[Crackity]

SPK has been 10c lower than today's close in recent weeks, so maybe the index fund sell-off was baked in. There might be a bit more residual selling tomorrow but now that the clever fund managers have sold at historic lows, we might see some normal trading patterns emerge.

Spark (SPK) is one of those stocks that's kept getting cheaper through the year, now finding itself down a painful 43% year-to-date.

At the end of October they downgraded earnings guidance by ~3.5% and lowered their dividend guidance by 2.5cps to 25cps, putting it on a yield of over 9%.  The downgrade was a mixture of cyclical (shorter term) issues, and some that were more structural (longer term), both conspiring to hit margins and thus earnings. The cyclical part is what we think investors have not appreciated. i.e. SPK is owned as a defensive yield play, not a cyclical stock.

The broader issue to think about with SPK at the moment, is they remain committed to expanding into high tech and data centre sectors, but they don't have the funds to do it themselves, so they need a more aggressive capital management reset in our view. The other aspect worth highlighting is a move towards technology and data-centres will (proportionally) reduce it's exposure to core utility type earnings – not necessarily a bad thing but a change in their earnings profile none-the-less.

This transition won't be easy and could take 12-18 months to execute. As a positive reference, Singtel has re-rated by +30% in the last six months using a similar strategy. Asset sales would most likely need to happen to help fund the expansion, and we think they need to be more aggressive in cutting the dividend to align with their stated strategy.


Oz fundie commentary in the weekend 🤔

[seaweed]

Am I reading this right. Did Milford Asset Management buy 96,039,988 shares in SPK on Monday 25/11/24

[BlackPeter]

SPK has been 10c lower than today's close in recent weeks, so maybe the index fund sell-off was baked in. There might be a bit more residual selling tomorrow but now that the clever fund managers have sold at historic lows, we might see some normal trading patterns emerge.

Am I reading this right. Did Milford Asset Management buy 96,039,988 shares in SPK on Monday 25/11/24

Clearly - Milford must be one of these clever fund managers LL mentioned? Oh no, they didn't sell, they bought  ;

Quite funny - the smartness of money (or its managers) seems to be fully correlated to the personal views of some omniscient poster. If the money does as the poster thinks, it is smart, and if it doesn't it is -  well, not that smart.

[LoungeLizard]

Clearly - Milford must be one of these clever fund managers LL mentioned? Oh no, they didn't sell, they bought  ;

Quite funny - the smartness of money (or its managers) seems to be fully correlated to the personal views of some omniscient poster. If the money does as the poster thinks, it is smart, and if it doesn't it is -  well, not that smart.

I don't think anyone really buys or sells based on what fund managers recommend, do they? Do your own research and follow your instincts is the basic rule. Sometimes that means going against the market, sometimes not.
In the case of Spark, I remain convinced they are victim of both the recessionary times and borderline market manipulation. The latter's effect will die away soon, the former, longer. But in any event, SPK are way undervalued (less than FBU - a loss making organisation the last time I checked).

disc. holder and buying more.