SPK - Spark NZ

[Basil]

They need to get their debt down. Pre abnormals EPS 2.8 cps and a divi of 8 cps.

[/b]
That's madness and with only a 50% level of imputation now.

[Shareguy]

[/b]
That's madness and with only a 50% level of imputation now.

Agree. I see a dividend trap and with 50 % imputation. I suspect though a lot of people will think it's a great result. Will be interesting to see FB take on this.

[LoungeLizard]

Insert from Craig's latest note on the result

SPK have retained their FY guidance, but as noted this includes asset sale gains. Typically these have run at $25-30m pa, so with $24m in 1H it suggests the abnormal adjustment likely for the FY guidance may be bigger than we had previously expected.  Consequently we would view it as a downgrade to 'Normalised' guidance.

They need to get their debt down. Pre abnormals EPS 2.8 cps and a divi of 8 cps.

Well, they have identified that to be fair. Net debt is 5% lower not counting the partial data-centre sale whose proceeds will bring debt back from 2.2x debt/EbITDAI leverage ratio to a more conventional 1.7x.

[LoungeLizard]

Agree. I see a dividend trap and with 50 % imputation. I suspect though a lot of people will think it's a great result. Will be interesting to see FB take on this.

I don't think it is great result but I don't think the market was expecting it to be. There are however a number of metrics that are now going in the right direction although there's some way to go yet. Against the backdrop of a recessionary economy and a Government that doesn't want to invest in IT or digital services (or indeed anything) it's a good result. Green shoots as they say.

Not a dividend trap as you suppose. As has been demonstrated, the current level of 15-17c is sustainable. Thats a reasonable yield I feel for a defensive stock with prospects. FB don't like Spark , Morningstar are more bullish. Take your pick.

[Basil]

If the dividend is sustainable at 16 cps with 50% imputation credits, (and that's a huge "IF" in my opinion), that's 18.6 cps gross and an 8.7% gross yield on today's closing price of $2.13.   Surely anyone looking objectively at this as a dividend hound should be wondering how much longer they can keep selling assets to pay unsustainable level's of dividends that exceed normal earnings per share ?   You'd think a prudent forward looking board would cut the dividend to 60-70% of ordinary earnings per share and reinvest the rest for growth and / or get on top of their debt mountain ?  Why aren't they doing that ?
Page 16 EPS from continuing operations 2.9 cps.  https://api.nzx.com/public/announcement/467668/attachment/462497/467668-462497.pdf

[LoungeLizard]

Spark have confirmed guidance FCF as being between $290-$330m) so ($290m->$330m)/1,890.1m shares = 15.3->17.5cps.
 So if you believe Sparks guidance figures, then yes, the current, attractive yield is sustainable.

[LoungeLizard]

For what it's worth, Morningstar's latest assessment based on the interim result:

Event analysis:

Spark New Zealand Earnings: Cost Cuts Stabilize Performance; Core Focus to Regrow Earnings

Spark reported a 5% lift in first-half fiscal 2026 adjusted EBITDAI to NZD 457 million, excluding the recently sold data center unit, on a revenue fall of 1% to NZD 1.9 billion. The interim dividend per share of NZD 0.08, 50% imputed, is down 36%. Fiscal 2026 guidance was reaffirmed on all metrics.

Why it matters: The in-line result arrests the negative earnings cycle, which began in the second half of fiscal 2024. Despite tepid top-line performance, the benefits of cost-cutting efforts are flowing through, with first-half operating expenses down 10%, or NZD 51 million, from a year ago. The high end of management's NZD 30 million-NZD 50 million cost-reduction target for fiscal 2026 has been achieved in the first half. But more marketing, new technology delivery, and inflation will consume some of the savings in the second half, thwarting a full-year guidance upgrade. Still, the reiterated fiscal 2026 EBITDAI guidance of NZD 996 million-NZD 1,056 million, excluding data centers, implies stabilization. Commitment to further cost cuts has not wavered, with an annualized savings target of NZD 110 million-NZD 140 million by end-fiscal 2027 intact.

The bottom line: We retain our forecasts and fair value estimates of NZD 3.60 and AUD 3.10. We project flat fiscal 2026 EBITDAI of NZD 1,049 million, excluding data centers, laying the foundation for a recovery as Spark pursues a "focus on core, shed the rest" strategy. That foundation is supported by a rapidly deleveraging balance sheet. Net debt/EBITDAI is projected to fall to our estimated 1.7 by the end of fiscal 2026, from 2.2 currently, due to NZD 453 million proceeds from selling 75% of the data center unit in January 2026. As such, shares in narrow-moat Spark are materially undervalued. With free cash flow on track to rise by 20% in fiscal 2026, our full-year forecast DPS of NZD 0.16 looks secure, even prior to earnings growth from fiscal 2027. At current prices, that equates to an attractive yield of 7%-plus.

[entrep]

For what it's worth, Morningstar's latest assessment based on the interim result:

Event analysis:

Spark New Zealand Earnings: Cost Cuts Stabilize Performance; Core Focus to Regrow Earnings

Spark reported a 5% lift in first-half fiscal 2026 adjusted EBITDAI to NZD 457 million, excluding the recently sold data center unit, on a revenue fall of 1% to NZD 1.9 billion. The interim dividend per share of NZD 0.08, 50% imputed, is down 36%. Fiscal 2026 guidance was reaffirmed on all metrics.

Why it matters: The in-line result arrests the negative earnings cycle, which began in the second half of fiscal 2024. Despite tepid top-line performance, the benefits of cost-cutting efforts are flowing through, with first-half operating expenses down 10%, or NZD 51 million, from a year ago. The high end of management's NZD 30 million-NZD 50 million cost-reduction target for fiscal 2026 has been achieved in the first half. But more marketing, new technology delivery, and inflation will consume some of the savings in the second half, thwarting a full-year guidance upgrade. Still, the reiterated fiscal 2026 EBITDAI guidance of NZD 996 million-NZD 1,056 million, excluding data centers, implies stabilization. Commitment to further cost cuts has not wavered, with an annualized savings target of NZD 110 million-NZD 140 million by end-fiscal 2027 intact.

The bottom line: We retain our forecasts and fair value estimates of NZD 3.60 and AUD 3.10. We project flat fiscal 2026 EBITDAI of NZD 1,049 million, excluding data centers, laying the foundation for a recovery as Spark pursues a "focus on core, shed the rest" strategy. That foundation is supported by a rapidly deleveraging balance sheet. Net debt/EBITDAI is projected to fall to our estimated 1.7 by the end of fiscal 2026, from 2.2 currently, due to NZD 453 million proceeds from selling 75% of the data center unit in January 2026. As such, shares in narrow-moat Spark are materially undervalued. With free cash flow on track to rise by 20% in fiscal 2026, our full-year forecast DPS of NZD 0.16 looks secure, even prior to earnings growth from fiscal 2027. At current prices, that equates to an attractive yield of 7%-plus.

It reads as a memo designed to justify maintaining an existing rating rather than one that deeply interrogates whether the recovery assumptions will actually play out. The revenue decline, imputation deterioration, and competitive pressures deserve more attention than they receive.

[Cod]

The in-line result arrests the negative earnings cycle - post LL (Morningstar)

Note the phrasiology "arrest" not reverse - so in other words holds the current EBIT and hope for easier times, which in my opinion will never arrive due to legacy, competition and moribund administration.

[LoungeLizard]

It reads as a memo designed to justify maintaining an existing rating rather than one that deeply interrogates whether the recovery assumptions will actually play out. The revenue decline, imputation deterioration, and competitive pressures deserve more attention than they receive.

I suspect you have to pay for a deeper analysis along the lines you suggest, Entrep. Also, at the end of the day we go on our own instincts/analysis. No one should follow what agencies say one way or the other.

Also I think you are being unrealistic if you think anybody can say with any certainty whether "the recovery assumptions" will play out. A lot of that will depend on the recovery in the wider NZ economy and also in a change of Government policy.

Broadly speaking though the numbers are trending in the right direction. And the dividend is both attractive and sustainable in the meantime. Good enough me to consider Spark as a HOLD, if not perhaps a BUY. 

[entrep]

Ex-div today, 8c 50% imputed

[Shareguy]

Gosh it's been a while since I looked at this. $1.92 and still dropping. The Board needs to go. Confirmation that selling the data centres and then buying back shares was another value destroyer for share holders. Forbar claim that still loosing market share.

[Plata]

I wonder how much of the decline here is related to fears about satellight internet, similar to how the SaS sector got hammered by AI fears recently