Dekker and Lowe say a “potential step-up in investment in centres” that Spark outlined with its first-half result “demands a clearer investment and funding case”.
“In the current circumstances, a dividend cut may be justified,” Dekker and Lowe say.
There are other avenues as Spark looks to fund expansion of its data centre operations, and its promise of cashing in at the sharp end of the AI boom.
As the telco gained resource consent for a new data centre at Dairy Flat north of Auckland – which will warm a surf lagoon, which also got the green light – chief executive Jolie Hodson said the 10 megawatt first-stage of the facility was funded through existing capex.
There were plans to eventually expand it to a 40MW facility (that is, roughly on a par with the hyperscale facilities being built by the Big Tech multinationals).
“We’ll consider appropriate funding models or partnerships for this investment as we progress those opportunities,” Hodson said.
Dekker and Lowe think it’s time for details.
The heart of the Mattr
It’s also time for Spark to share more about Mattr, its online identity verification business, Dekker and Lowe reckon.
“Is Spark a natural funder of a digital identity business with global ambitions?” they ask. “It could be but after five years it is time for transparency.”
They add, darkly, “like media before [that is, Lightbox and Spark Sport], it is time to show why Mattr is underappreciated and if it cannot, to show discipline there too”.
More broadly, Dekker and Lowe say Spark is making cuts to its IT business. There has been market chatter about anywhere from 100 to 300 roles being affected.
Spark has declined comment other than to say it’s consulting staff involved in government and enterprise contracts. Jarden’s analysts say it’s time for more visibility on the exercise.
ForBarr: Flat dividends
In May, the telco cut its guidance for the 12 months to June 30, warning operating profit could potentially be lower than the previous financial year.
The telco reduced ebitdai guidance from a $1.215b – $1.260b range to $1.170b – $1.210b.
The firm said at its half-year result in February that it was seeing “weaker demand in the enterprise and government market”. It added on May 6 that; “since the half, public and private sector spending cuts have deepened, and Spark has seen significantly reduced demand in IT service management and professional services and delays to planned digital transformation projects”.
In an August 15 note, Forsyth Barr analysts Aaron Ibbotson and Benjamin Crozier – who have a neutral rating on Spark – lowered their 12-month target from $4.73 to $4.40 (shares were recently trading at $4.43).
The pair also reduced their dividend estimates. They now predict the payout will be flat at 27.5cps for the next few years.
“After citing green shots at its first-half result that didn’t eventuate”, Spark may well be more cautious with its FY2025 guidance, the ForBarr analysts say.
Ibbotson and Crozier think Spark’s FY2025 operating earnings forecast will be about 3% below the consensus forecast.
On the positive side, the pair see “tailwinds” from Spark’s expanding data centre operations, a 5% lift in mobile service revenue and the telco’s move to charge $6 per month for its Xtra mail service – which they say could be “quite material” for earnings.
Chorus: No news is good news
Chorus’s full-year result, due next Monday, will be “uneventful”, Ibbotson and Crozier say.
The pair expect ebitda of $690m – at the midpoint of Chorus’ $680m to $700m forecast – and a dividend of 47.5cps, in line with the UFB network operator’s forecast.
Beyond that, Chorus says it’s committed to a “growing dividend through time”.
Ibbotson and Crozier are picking a 50.5cps dividend in FY2025 and 60cps by FY2028.
They see FY2025 ebitda coming in at $722m, ahead of the consensus $715m.
At its first-half result, Chorus promised a capital review, with the results revealed at its full-year presentation.
“We expect little change to come from it,” Ibbotson and Crozier say.
The pair have a neutral valuation on Chorus and a 12-month price target of $8.40. Shares were recently trading at $8.18.
One NZ fibre on the block? Nope
One NZ confirmed late last week that it will launch EonFibre by year’s end – “a dedicated fibre business aimed at supporting wholesale customers including hyperscalers”. That is, Amazon, Microsoft, CDC and others involved in northwest Auckland’s multibillion-dollar data centre boom.
The move was first flagged in March at an investor day staged by 100% owner Infratil.
The Australian reported at the time that, with the revamp, One NZ was testing the market for a sale.
“We currently have no plans to sell EonFibre, and instead plan to operate it as a dedicated business within our overall group to grow and expand our valuable fibre network,” One NZ head of sustainability and corporate affairs Nicky Preston told the Herald late last week
“The change is occurring so we can increase investment in our fibre network and operations, while increasing independence from the One NZ retail business, with the overall goal of maximising utilisation and valuation of our extensive fibre infrastructure assets.”
Eonfibre will manage hybrid fibre assets that One NZ (then Vodafone NZ) acquired from TelstraClear in 2013, plus fibre One NZ has built since.
One NZ’s top-line results will be reported with Infratil’s interim results after its reporting period closes on September 30.
The telco’s immediate focus is delivering on its promise to provide text-by-satellite service by year’s end.
The telco updated that there were more than 100 Starlink direct to cell satellites in orbit as of July (although Elon Musk’s firm has more than 5000 in orbit, only upgraded models support satellite-to-smartphone service).
One NZ reiterated that it would launch its Starlink-based service by year’s end, but was more nuanced than before in its language.
“Just like all technology rollouts including 5G most recently, there will be a phased introduction. We will be sharing more information about this with our customers in the coming months,” chief technology officer Tony Baird said.
Starlink’s direct to cell satellite service – promising coverage anywhere in the country and up to 12 nautical miles beyond NZ’s borders – will be exclusive to One NZ initially. The telco has not put a cost or duration on its period of exclusivity.
In the meantime, Spark and privately held 2degrees have thrown in their lot with United States start-up Lynk, a putative Starlink rival.
Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.
