SPK - Spark NZ

[Mos]

Theresa cut the divie once .... All hell broke out

Good point - must still be top of mind for the Board.

They must have had an interesting discussion around the Board table along the lines of...

"we are already paying out way more in dividends than we are earning in NPAT"
"revenue and earnings are down this year"
"lets go ahead and increase the dividend this year"

[LoungeLizard]

I think you might find that historic share prices are rarely a good indicator for the future. Just remember the poor sods who bought into Synlait at $6 (which was a steal, given that the same share was only months earlier worth nearly twice of that. But hey, just pick your own favourite example for markets getting it wrong for a long time and suddenly waking up - there are so many.

All shares come with a decent amount of hype (sometimes positive, sometimes negative), but at the end it is only the future earnings potential which counts, as Mos nicely indicated.

The only sensible reason to pay $4 for a company which used to deliver over a long time earnings in the mid 20-cents range pa without any growth would be if I can assume things change and the company is from now on delivering solid growth. Not sure, though, where this growth should come from? While no doubt communication stays important - what I noticed as user is that my budget for telecommunication services shrunk significantly over the years ... despite services as such much improving.

Its tough to keep (or grow) earnings in a shrinking fee pie.

You don't think telecommunications, digital and data services, cloud technology - not to mention Ai - is going to produce growth?

There are indeed a lot of examples - Synlait being one - where the SP has gone off a cliff leaving investors stranded, but in those cases there has been a significant event or a drop in demand of services to produce that sort of correction. There's a few things - the general depressed economy being one of them - that are impacting Spark, but not in a way that would account for the SP to fall to levels that are more less unprecedented.

I see Spark as a defensive stock in an essential industry, at a historically cheap price, that will recover and continue to pay a good return in the meantime, even if the divvy needs to be trimmed at some point. 

[BlackPeter]

You don't think telecommunications, digital and data services, cloud technology - not to mention Ai - is going to produce growth?

I assume you meant that as rhetorical question - but you left it as wide open as a farm gate with the most important parameters undefined, which means its hard to answer this question.

Telecommunications: No doubt the impact of telecommunications on our lives did grow for the last 100 years or so. However - telecommunications is a vast area. It started with digging trenches, laying copper lines and employing thousands of girls as switch exchange operators. The companies who grew with that (and it was really big business) have moved on since than. No money anymore in any of that.

Many steps followed - automation, digitalisation - and than moving everything from dedicated lines onto the Internet and - wireless of course. Some really big companies involved in any of the steps and lots of money did flow (and stopped with the next step), but -  do you see Chorus really as the next big thing?

You mentioned some current hot topics and sure - some companies make money with the cloud (amazon, google) and some others have currently thanks to the cloud hype inflated share prices (IFT is close to us, so I mention them). Time will tell who really will get rich with providing cloud services before they are just another boring commodity and the margins are slim as pin-up girls. Actually - one could argue, that's where we already are. I use the cloud, the phone and the internet and the cost are neglectable compared to just my telephone bill 30 years ago.

AI: You know anybody really making money with that technology? I don't. Of course everybody is pouring money into it, but this is different from harvesting sustainable earnings. But I guess its still early days, so - who knows. What I however know is that if AI becomes the next big thing (and not just the next hype after breeding ostriches), than it will be a very small number of very big companies who will harvest this money. Think Google, Microsoft or similar. Spark however? Yeah, right.

Lets face it - Spark is an insignificant and easy replaceable intermediary between the Southern Cross Cable and peoples cell phones and computers. Nothing they are doing is special or unique - and their margins will get slimmer and slimmer.

So, no - I don't think that in any of the buzzwords you mentioned is financial growth for their specific slice of the industry.

...

I see Spark as a defensive stock in an essential industry, at a historically cheap price, that will recover and continue to pay a good return in the meantime, even if the divvy needs to be trimmed at some point. 

Defensive - maybe, though it could be as defensive as the shares of the light rail operators in the early 20th century. I know - we haven't been around in that time, but light rail was the next big thing. The question is, whether they (Spark) are in the long term a good place to park ones money ... and this I doubt.

What do you think will happen to the share price when (not if) they can't pay anymore their juicy dividend?

Right - I think the term is "dividend trap", isn't it?

[Breezy]

I love these market hissy fits, great buying opportunity right here, Mr Market has severe short sightedness.
Watch the punters flock to this stock after a couple more interest rate cuts by the RB.

[LoungeLizard]

I assume you meant that as rhetorical question - but you left it as wide open as a farm gate with the most important parameters undefined, which means its hard to answer this question.

Telecommunications: No doubt the impact of telecommunications on our lives did grow for the last 100 years or so. However - telecommunications is a vast area. It started with digging trenches, laying copper lines and employing thousands of girls as switch exchange operators. The companies who grew with that (and it was really big business) have moved on since than. No money anymore in any of that.

Many steps followed - automation, digitalisation - and than moving everything from dedicated lines onto the Internet and - wireless of course. Some really big companies involved in any of the steps and lots of money did flow (and stopped with the next step), but -  do you see Chorus really as the next big thing?

You mentioned some current hot topics and sure - some companies make money with the cloud (amazon, google) and some others have currently thanks to the cloud hype inflated share prices (IFT is close to us, so I mention them). Time will tell who really will get rich with providing cloud services before they are just another boring commodity and the margins are slim as pin-up girls. Actually - one could argue, that's where we already are. I use the cloud, the phone and the internet and the cost are neglectable compared to just my telephone bill 30 years ago.

AI: You know anybody really making money with that technology? I don't. Of course everybody is pouring money into it, but this is different from harvesting sustainable earnings. But I guess its still early days, so - who knows. What I however know is that if AI becomes the next big thing (and not just the next hype after breeding ostriches), than it will be a very small number of very big companies who will harvest this money. Think Google, Microsoft or similar. Spark however? Yeah, right.

Lets face it - Spark is an insignificant and easy replaceable intermediary between the Southern Cross Cable and peoples cell phones and computers. Nothing they are doing is special or unique - and their margins will get slimmer and slimmer.

So, no - I don't think that in any of the buzzwords you mentioned is financial growth for their specific slice of the industry.


Defensive - maybe, though it could be as defensive as the shares of the light rail operators in the early 20th century. I know - we haven't been around in that time, but light rail was the next big thing. The question is, whether they (Spark) are in the long term a good place to park ones money ... and this I doubt.

What do you think will happen to the share price when (not if) they can't pay anymore their juicy dividend?

Right - I think the term is "dividend trap", isn't it?

Fair enough. I disagree with your analysis, it all seems a bit of a stretch to think that Spark - and Infratil - won't be at the forefront of the telecommunications, data and digital services for some time to come. Let's see where the SP and the business is in 5 years. I'm comfortable holding the stock for that sort of time period. I agree with Breezy, this is a great - almost historic - buying opportunity.

[Glenorchy]

I'm happy to see they've reinstated the DRP and are offering a 3% discount as a long term holder I'll be happy to take that.

I was not thrilled to see the 2025 dividend won't be fully imputed but I think the datacentre plan to more than triple capacity is still a good strategy and should hopefully yield benefits in a couple of years time.

[Basil]

https://www.nzherald.co.nz/business/hundreds-of-jobs-on-line-as-spark-aims-to-cut-50-million-in-labour-costs/BH7PNVR4VFEZHH34UEMLU633OQ/
Paywalled.  Doubts expressed by analysts as to whether the dividend is sustainable.

[Breezy]

https://www.nzherald.co.nz/business/hundreds-of-jobs-on-line-as-spark-aims-to-cut-50-million-in-labour-costs/BH7PNVR4VFEZHH34UEMLU633OQ/
Paywalled.  Doubts expressed by analysts as to whether the dividend is sustainable.

Just as well some of us consider analysts opinions bollocks, even if it got a trim it wouldn't be for long, might pay to take a look at the divvy history. PS-I often wonder if skiing near 100kph at times is sustainable for an old fella but seems to be so SPK divvy should be okay.

[Basil]

Michael Schumacher thought he was fast and cool on the ski's too. 

[Breezy]

Michael Schumacher thought he was fast and cool on the ski's too. 

Go hard or go home but actually his accident didn't occur at high speed, it occurred during an off trail traverse. Most ski injuries actually happen whilst mounting and particularly dismounting ski lifts. The biggest risk you can take is driving your car.

[Left Field]

SPK SP taking quite a hammering since the results.......  down another 4% to $3.62 today.

TA looking ominous.

[BlackPeter]

SPK SP taking quite a hammering since the results.......  down another 4% to $3.62 today.

You  need to complain with LL - he disagreed with our analysis. For everybody else I think the development is quite predictable.

FTBIADT = Fear to Buy into a Dividend Trap?

Ah yes, and never try to catch a falling knife ...

[Buzz]

SPK SP taking quite a hammering since the results.......  down another 4% to $3.62 today.

TA looking ominous.

The TA is terrible, best to avoid putting in capital, or more capital, until it turns.

Bear in mind this is a big boys stock, and to put through volume at such a declining SP says to stay away until they change their mind and want back in. It should be obvious when they do, like as obvious as it is now that they don't.

Despite being a dividend trap, currently at 9.9% gross dividend, it is a trap worth falling into - at the right SP, gross div could get even better!.

[Breezy]

SPK SP taking quite a hammering since the results.......  down another 4% to $3.62 today.

TA looking ominous.

Who cares about ominous TA when you have a long term outlook, let others sell for a loss and stay the course. A year from now once interest rates have been slashed the herd will be piling back into this stock. Disc-My 2nd largest holding.

[LoungeLizard]

Who cares about ominous TA when you have a long term outlook, let others sell for a loss and stay the course. A year from now once interest rates have been slashed the herd will be piling back into this stock. Disc-My 2nd largest holding.

Yep - in the short term a 14c dividend coming up at a price of $3.62? I'll take that everyday of the week. As for the long term, I don't have any doubts at all that the SP will recover and the dividend, although it may be cut, will still be compelling.