SPK - Spark NZ

[seaweed]

Sorry to bore you people about this sick puppy, but something seems different this year. They say no news is good news. Results out on Wed. 20 August. Last year was Friday 23 August. Is the old saying goes bad results usually come out on a Friday. The sp seems quite strong recently. Am still sitting on quite a lot after selling and buying back again.     

[Left Field]

Sorry to bore you people about this sick puppy, but something seems different this year. ... Am still sitting on quite a lot after selling and buying back again.     

No need to apologise seaweed. I wish you well. You saw div/yield while many of us saw div/trap.

Interesting to watch from the sidelines, it seems you have had to work v hard to recover your investment?

[LoungeLizard]

Sorry to bore you people about this sick puppy, but something seems different this year. They say no news is good news. Results out on Wed. 20 August. Last year was Friday 23 August. Is the old saying goes bad results usually come out on a Friday. The sp seems quite strong recently. Am still sitting on quite a lot after selling and buying back again.     

The sick puppy is recovering well and it's worst days are behind it. The marvels of modern management. The results won't be great I wouldn't imagine, but hopefully a dividend of around 12c will keep Mr Market happy. 

[Red Baron]

The sick puppy is recovering well and it's worst days are behind it. The marvels of modern management. The results won't be great I wouldn't imagine, but hopefully a dividend of around 12c will keep Mr Market happy. 

Zorry I must have been azleep.   Vhat have management done again zhat eez zo marvelleous?

?  Mobile market zhare ztill under pressure?
?  No announcment on data zentre partnetzhip?
?  Big data projects vor Government and Big Business ztill on hold?
?  New CFO Ztewart 'zolves' debt issues by zaying 'no worries'?

RB

[Basil]

https://www.marketscreener.com/quote/stock/SPARK-NEW-ZEALAND-LIMITED-6492600/
Trades on 17.3 times forecast FY26 earnings for a no growth company which means the only reason to own it is for yield.  How low will the dividend reset go, that's the $64,000 question ?  The average of 9 analysts is for DPS of 18 cps in FY26.  If its cut to the low teens I think many investors will be disappointed.

[LoungeLizard]

Zorry I must have been azleep.   Vhat have management done again zhat eez zo marvelleous?

?  Mobile market zhare ztill under pressure?
?  No announcment on data zentre partnetzhip?
?  Big data projects vor Government and Big Business ztill on hold?
?  New CFO Ztewart 'zolves' debt issues by zaying 'no worries'?

RB

Mobile market share is pretty solid, it's the Government telco services that have been hit. That's not their fault - we have a Government that has given up investing in anything. So SPK have been downsizing/refitting the organisation to suit the economic climate and into areas where the ROI is better. Selling legacy, non-core assets like Connexa is part of that. Cutting labour and op-ex costs in-year and on-going is another. Looking for strategic partners (Infosys/ Nokia ) is also an attempt to reduce capex.

 You could argue that they could and should have done this sooner and I would agree with that. They have been complacent and have got punished for it. But you could also argue that the market has been too harsh and the massive selloff was unwarranted. Seems to be swinging back in favour again. The yield, current and forecast, seems perfectly acceptable to me at these prices, particularly with the SP moving upwards again.

` 

[seaweed]

https://www.marketscreener.com/quote/stock/SPARK-NEW-ZEALAND-LIMITED-6492600/
Trades on 17.3 times forecast FY26 earnings for a no growth company which means the only reason to own it is for yield.  How low will the dividend reset go, that's the $64,000 question ?  The average of 9 analysts is for DPS of 18 cps in FY26.  If its cut to the low teens I think many investors will be disappointed.

Basil at $2.59c what would the YLD be with 18c div. My calcs around 7%. and if lower am happy with 5% YLD short term at the moment.   

[Basil]

Hi Seaweed.  Assuming they can pay that level of dividends going forward and fully impute it, which may not necessarily be safe assumptions given they were not fully imputing the 25 cent divvy and forecast EPS is only 15 cps for FY26, then the gross dividend would be 18 / 0.72 = 25.  25 / 259 = 9.65%.
Best wishes with it mate.  You know its not for me and I suspect this puppy is not going to go on and win any awards at any dog show for the foreseeable future.
Sometimes sick puppies never make a full recovery and then have a permanent limp afterwards.  I suspect that's the case here.

[seaweed]

Hi Seaweed.  Assuming they can pay that level of dividends going forward and fully impute it, which may not necessarily be safe assumptions given they were not fully imputing the 25 cent divvy and forecast EPS is only 15 cps for FY26, then the gross dividend would be 18 / 0.72 = 25.  25 / 259 = 9.65%.
Best wishes with it mate.  You know its not for me and I suspect this puppy is not going to go on and win any awards at any dog show for the foreseeable future.
Sometimes sick puppies never make a full recovery and then have a permanent limp afterwards.  I suspect that's the case here.

Thanks Basil. Mentioning sick dogs. My sisters old dog is stumbling around on three legs and I am on call to help lift her into the car when the time comes for her last drive to the vet. Back to SPK, Am lucky to have got back to over weight after ex div date, they up 30% since, but it was a hard road. Also PGW agm tomorrow, have bought more SPK,GNE,PGW,RBD,TRA and FSF in the last week. Am looking forward to PGW results cross fingers. 

[LoungeLizard]

Thanks Basil. Mentioning sick dogs. My sisters old dog is stumbling around on three legs and I am on call to help lift her into the car when the time comes for her last drive to the vet. Back to SPK, Am lucky to have got back to over weight after ex div date, they up 30% since, but it was a hard road. Also PGW agm tomorrow, have bought into SPK,GNE,PGW,RBD,TRA and FSF in the last week. Am looking forward to PGW results cross fingers. 

Yes, it has been a hard road for those of us who have been long term SPK investors, but as long as one does not panic or is forced to sell at the low point, then using the downtrend to reduce average buy-in can be a successful strategy. Particularly, as Basil calculates, you are getting nearly 10% at the reduced prices. One needs to have nerves of steel though (and a bit of faith/luck) that the SP will eventually recover. Which, in SPK's case, being so clearly oversold, it was always likely to do.
You'll be enjoying the FSF run, Seaweed?

[Left Field]

Sale of 75% SPK's data centre interests.......interesting.  Selling the Crown Jewels!?? At least SPK's continued div/yield is assured....

https://www.nzx.com/announcements/456574

Spark announces sale of 75% of data centre business
 
 Spark New Zealand (Spark) today announced it has entered into an agreement to sell a 75% interest in its data centre business to Pacific Equity Partners (PEP). The investment will be made from PEP's Secure Asset Fund, which invests in infrastructure growth platforms.
 
 The transaction values the business at up to $705 million(1) , representing a FY25 pro-forma EBITDA multiple of 30.8x(2). As cloud and AI uptake continues to increase demand for data storage and compute in New Zealand, the introduction of a capital partner secures a funding pathway to build out Spark's planned 130MW+ data centre capacity development pipeline.......

[LoungeLizard]

Sale of 75% SPK's data centre interests.......interesting.  Selling the Crown Jewels!?? At least SPK's continued div/yield is assured....

https://www.nzx.com/announcements/456574

Spark announces sale of 75% of data centre business
 
 Spark New Zealand (Spark) today announced it has entered into an agreement to sell a 75% interest in its data centre business to Pacific Equity Partners (PEP). The investment will be made from PEP's Secure Asset Fund, which invests in infrastructure growth platforms.
 
 The transaction values the business at up to $705 million(1) , representing a FY25 pro-forma EBITDA multiple of 30.8x(2). As cloud and AI uptake continues to increase demand for data storage and compute in New Zealand, the introduction of a capital partner secures a funding pathway to build out Spark's planned 130MW+ data centre capacity development pipeline.......

Market seems to like it, as it may assure dividends going forward.
Difficult to now what to make of it. Is this a strategic decision recognising that they have overcommitted resources and need to scale back, or has it been brought on just to get the books in order? Probably both. But it does seem to be at odds with their recent statements around the pivot towards datacentres. Maybe 25% is a better sized footprint for now, with potential to expand once debts have been reduced. Will be interesting to see how this plays out.

[Left Field]

Market saying it is not impressed by today's news.

SP hasn't broken through the $2.50 resistance with confidence. Not encouraging in terms of SP appreciation, but at least the next few dividends are in the bank.  GLH's.

[Basil]

Maybe the sick puppy has a permanent limp going forward from carrying all the weight of many years of excessive borrowings to pay higher dividends than earnings ?  Analyst forecast is only 15 cps in EPS in FY26.  If they don't revise the dividend level down to that level or slightly lower, the directors have learned nothing from past mistakes.

[LoungeLizard]

Morningstar seems to suggest the datacenter sale was more about getting debt down, and probably a good move:

Event analysis

Spark New Zealand: Sells 75% of Data Center Field of Dreams

Spark New Zealand has agreed to sell a 75% interest in its data center portfolio to Pacific Equity Partners. The deal values the asset at a base enterprise value of NZD 575 million (22.9 times pro forma EBITDA), increasing to NZD 705 million on achieving earn-out targets (30.8 times EBITDA).

Why it matters: Group net debt/EBITDAI has crept up to 2.3 by the end of 2024, due to the abrupt earnings downturn that began 18 months ago. The leverage ratio is substantially above the 1.7 threshold to maintain Spark's A- credit rating. Since then, Spark has sold its remaining Connexa stake for NZD 311 million. Combined with the initial cash proceeds of NZD 486 million on completion of the data center sale, we calculate net debt/EBITDAI would fall to around 1.9 on our pro forma fiscal 2025 earnings estimates. There may be more to come, to the tune of NZD 98 million, if the data centers hit certain performance-based targets by the end of 2027. Furthermore, Spark's remnant 25% interest ensures its shareholders can still benefit from the data center "field of dreams" to be rolled out.

The bottom line: We maintain our NZD 3.60 per share fair value estimate for narrow-moat-rated Spark, or AUD 3.20 at current exchange rates. We make no changes to our forecasts, with the completion of the data center portfolio sale not expected until the end of 2025. Shares in the group remain at an attractive discount to our intrinsic assessment. Investor caution is understandable, given the three downgrades to earnings guidance over the past 18 months. Tangible evidence of cost-outs is needed with the upcoming result to assuage such caution. However, the data centers have been monetized at a good price, especially compared with the NZD 200 million-NZD 220 million capital we estimate Spark has pumped into building them since fiscal 2021. The proceeds should go a long way toward calming investor nerves about the balance sheet.