SPK - Spark NZ

[Buzz]

ACC must see a bargain, increased holdings to 96m shares.  https://www.nzx.com/announcements/447287

[lorraina]

Crikey ACC losing big money.
Watch out premiums will be increasing.

[TraderRay]

Going ex div soon. Question is at this new low buy before or after dividend?

[Basil]

Have a look at the chart downtrend since early 2024.  A simple technical analysis strategy of selling on the breakdown in the 200-day moving average would have got people out at over $5 last year and kept them out and avoided a massive destruction of your capital.

Plenty of people on here thought you couldn't lose buying at $3, just scroll back a few pages and see for yourself.

Rather than asking yourself whether you should buy before or after the dividend perhaps first ask, what makes you think the downtrend is over ?

[LoungeLizard]

Have a look at the chart downtrend since early 2024.  A simple technical analysis strategy of selling on the breakdown in the 200-day moving average would have got people out at over $5 last year and kept them out and avoided a massive destruction of your capital.

Plenty of people on here thought you couldn't lose buying at $3, just scroll back a few pages and see for yourself.

Rather than asking yourself whether you should buy before or after the dividend perhaps first ask, what makes you think the downtrend is over ?

Perhaps the downtrend is over or not - I would suspect not considering the SP should drop, ex-dividend. But there's no loss for shareholders unless they sell and I can't for the life of me know why you would do that and crystallise the losses. Even if/when the dividend is cut to say, 20c that's a great, and sustainable, return on a utility stock, that will rebound once the factors that brought us to this point are resolved. Some of those are internal and some of them are about the wider NZ/global economy. Most stocks - including funds - are taking a pummelling right now, but if I was buying, a utility stock at historic lows offering an outstanding yield might not be as counter-intuitive as it looks. 

[Basil]

I know 20 cps is a popular theory on the other channel, but I really wonder if that is sustainable?  Average analyst forecast is for eps of 14.89 cps in FY26.  SPK on the record that they want to fund a new expensive data center and that they are doing a dividend reset later this year.  Maybe a radical dividend reset shock in the name of funding growth is coming?  A good old-fashioned approach of paying say 2/3's of eps, would see it reset to 10 cps.  Maybe it won't go that low, but I think those thinking it won't get cut under 20 cps could be setting themselves up for disappointment.  Time will tell...
https://www.marketscreener.com/quote/stock/SPARK-NEW-ZEALAND-LIMITED-6492600/finances/
As for buying in a confirmed downtrend...what could possibly go wrong. 

[LoungeLizard]

I know 20 cps is a popular theory on the other channel, but I really wonder if that is sustainable?  Average analyst forecast is for eps of 14.89 cps in FY26.  SPK on the record that they want to fund a new expensive data center and that they are doing a dividend reset later this year.  Maybe a radical dividend reset shock in the name of funding growth is coming?  A good old-fashioned approach of paying say 2/3's of eps, would see it reset to 10 cps.  Maybe it won't go that low, but I think those thinking it won't get cut under 20 cps could be setting themselves up for disappointment.  Time will tell...
https://www.marketscreener.com/quote/stock/SPARK-NEW-ZEALAND-LIMITED-6492600/finances/
As for buying in a confirmed downtrend...what could possibly go wrong. 

On the datacentre side of things they are looking for partners to take the pressure off capex and they are also looking at selling further non-core legacy assets, so I think free cash flow is going to be sufficient to avoid a radical reset. As for analysts forecasts - well they are not worth quoting or bothering about.

The worst thing one could do here, in my opinion, is to SELL in the downtrend. i.e crystallise losses. If one thinks that SPK will eventually rebound from its lows - whatever that may turn out to be - then sitting tight and banking the divvies is the best approach. If Spark do in fact cut their dividend drastically, then the equation changes, but whilst I think a cut is coming I don't think it will be radically lower. In my case my average price is sufficiently low enough for the divvy to be cut but to still get a good yield whilst I wait it out. 

[TraderRay]

Even with a juicy dividend only days away these are getting dumped like Musk is the CEO.

Can't see them not being sub $2 next week. Will bite in the 1.70's

[LoungeLizard]

Even with a juicy dividend only days away these are getting dumped like Musk is the CEO.

Can't see them not being sub $2 next week. Will bite in the 1.70's

Yes - probably will be sub $2 ex-dividend. But no reason to sell at those levels, if the yield remains high. The question to ask is - will SPK recover to $3 or $4 in the next 2-3 years. My view is that it will, in which case, keep banking the divvy's and sit tight - possibly even buy. But definitely NOT sell.

[Basil]

https://www.goodreturns.co.nz/article/976524193/spark-s-continuing-slide-helps-drive-nz-sharemarket-down-0-8-over-7-for-the-year.html?utm_source=GR&utm_medium=email&utm_campaign=GoodReturns+Market+Report+for+17+Mar+2025

Ferg, with all the extra debt SPK is carrying now compared to years gone by, maybe analysts predicting 15 cps for FY26 is about where this settles and your long term average of 20 cps for SPK no longer applies?  Thoughts ? 

[Ferg]

https://www.goodreturns.co.nz/article/976524193/spark-s-continuing-slide-helps-drive-nz-sharemarket-down-0-8-over-7-for-the-year.html?utm_source=GR&utm_medium=email&utm_campaign=GoodReturns+Market+Report+for+17+Mar+2025

Ferg, with all the extra debt SPK is carrying now compared to years gone by, maybe analysts predicting 15 cps for FY26 is about where this settles and your long term average of 20 cps for SPK no longer applies?  Thoughts ? 

Lower interest rates should provide some relief from the higher debt levels, although that depends on existing forward interest rate contracts held by SPK and the speed of rate reductions versus debt level increases.....and whether or not SPK can maintain its credit rating.  A few moving parts.

I take issue with the last of the Connexa sale proceeds being used to fund the next dividend...surely that should go into debt reduction.  Given the growth in debts over the past 10 years for no growth in EPS, I question capital management policies at SPK.  I believe it is being addressed later this year.  That sounds to me like the BoD are 'hoping' for a better trading environment before having to make the hard decisions.

There seems to be a focus on valuing SPK based on dividends.  I predict the dividend will be cut further than most analysts are expecting which undermines such valuations.

So better to focus on EPS as you say, given the dividend uncertainty.  I haven't run the numbers on future EPS but SPK are looking to eliminate costs off the back of a soggy trading environment.  From the anecdotes I am hearing, I reckon the suspended Government revenues are not delayed....they are gone, and in some cases may not return.  And some of the headline numbers for mobile and broadband are heading in the wrong direction.  Returns from other initiatives like data centres do not have a high enough contribution to offset the other losses.  So yes I think SPK are heading for a lower EPS for a year or 2, but there are a few moving parts and some levers Management can pull.

I'm not putting too much effort into the FA on SPK right now given the price isn't attractive enough (for me, for now) but it is on my radar.

Patience.....buy in haste and repent at your leisure.  When I first posted about SPK back in Sept 2024 while looking for a good dividend stock, the SP was $3.09.  It takes a lot of dividends to recover a 33% capital loss and make a return.  IMO it still looks like a dividend yield trap.

This article posted on the other site sums it up:
https://www.marketindex.com.au/news/asx-dividend-stocks-unpacking-one-of-the-markets-biggest-yield-traps

[Greekwatchdog]

Great response Ferg, I have had this on my watchlist for 12 months. Damn glad I haven't bought any thus far.

$1.50 to $1.75 out of the question?? Must be an entry point around there for me.

[Basil]

Thanks Ferg, much appreciated.  Great post with which I agree 100% and great article.
It's got all the makings of a classic dividend trap to me.

[Ferg]

$1.50 to $1.75 out of the question?? Must be an entry point around there for me.

We might have to join the back of a very long queue at that price!  IMO such a price is possible but improbable unless the proverbial hits the fan.  I want to hear what the BoD and CEO have to say about turning this ship around but then it may be too late.....decisions.....decisions.....but I would rather de-risk any such buying by understanding the fundamentals better rather than taking a leap of faith.

[Basil]

If I stick to my well proven valuation methodology for no growth companies, which has saved me a tremendous amount of grief over the years, no growth companies are worth no more than 8.5 times next year's earnings and the average eps forecast for FY26 by 9 analysts is only 15 cps which suggests as low as $1.28 is possible (8.5 x 15 = $1.275).  Worse, if those Govt contracts are gone as you suggest and I think you are right, eps might only be 13-14 cps in FY26.

Very, very dangerous business buying in a downtrend. For me, I'll sit tight, not be tempted by an "apparent" super high yield and wait for as long as it takes for a new uptrend to start forming.