Hang at $5, or dive to $4?
Quote:
Originally Posted by
BlackPeter
OK, cheers - get it. So - are you saying you expect Spark's dividend to come down over the years to come?
To repeat your own life lesson you have retorted more than once to us on this forum BP:
"Accurate predictions are a difficult thing to make, especially about the future."
I am seeing a shortfall with the imputation credits earned compared with the imputation credits paid out. Make of that what you will.
I am also seeing a disconnect between 'profit growth' and 'dividend growth'. The dividend goes up and up, and is now fully imputed no less. But the profit looks pretty close to flat lining, at a level 10-20% below the dividend level (Refer post 2002) . Yet I have to acknowledge that management know a lot more about the future prospects of Spark than I do.
It could be, for example, that when the Takanini data-centre expansion comes on line, Spark will get a sudden boost in profit from what has been -until now- a sunk capital expansion cost. Management recognise this, so feel confident a jump in profit is 'baked in' despite the actual profit for FY2022 being flattish. However, Spark doesn't particularly need cash in the meantime. So if they are paying a 'fully imputed dividend' (artificially inflated by a capital top up), they are effectively dishing out a 'dividend in advance' of their expansion coming to fruition. Next year the jump of earnings will be real, so there will be no need to repeat a 'capital top up' to that imputation credit account to ensure the dividend was fully imputed (if indeed such a top up ever happened).
Nevertheless, if you have been reading this thread of late, you will have learned that there is plenty of competition in the data-centre space. So how sticky will any uptick in earnings be? If we retreat back to a dividend level that matches net profit today, I would say the Spark share price might settle back down towards the $4 mark. Therein lies the 'investment risk' of owning Spark shares, priced on the market at nearer $5 today.
Quote:
Originally Posted by
BlackPeter
This clearly would be a concern for holders of an already overpriced stock, looking at a quite high PE (long time avg around 24), minimal growth rates (low single digits) and minimal NTA).
I wouldn't get too hung up on the NTA. The intangibles, like being the incumbent market leader, and being a 'cool brand' again, courtesy of market repositioning from 'Telecom' to 'Spark' (and 'Skinny') are, I feel, more important than tangible assets. Finally having personally dealt with all three of the big retail telecommunications players in NZ (the other two being 'One--ex-Vodafone', and 2 Degrees), I think Spark gives the best customer service of the three.
I guess I would class myself as a 'satisfied Spark customer'. I always feel good about investing in firms that I have had good personal service from. But 'feeling good' is not an excuse 'to pay too much'.
Is Spark overpriced at around $5? If they can maintain -or even grow- their dividend, then probably not.
As for being a company with 'minimal growth rates', I would suggest it is better in this case to look at the 'sum of the parts' rather than viewing Spark as a collective. I did this in this post -1812- which I quote from eighteen months ago.
Quote:
Originally Posted by
Snoopy
The bare earnings numbers and history as a default necessary service provider lead to the impression of a 'steady as she goes' giant - I agree. But look at what has happened to the revenue break down over the five reporting years under review.
Product Category |
Operating Revenue (FY2021) |
Operating Revenue (FY2017) |
Change |
Change Percentage |
Mobile |
$1,311m |
$1,197m |
+$114m |
+9.5% |
Voice |
$308m |
$655m |
-$347m |
-47% |
Broadband |
$670m |
$689m |
-$19m |
-2.8% |
Cloud, Security & Service Management |
$443m |
$324m |
+$119m |
+36.7% |
Procurement and partners |
$414m |
$345m |
+$69m |
+20.0% |
Managed Data, Networks & Services |
$282m |
$207m |
+$75m |
+36.2% |
Other Operating Revenues |
$137m |
$116m |
+$21m |
+18.1% |
Total External Revenues |
$3,565m |
$3,533m |
Total Absolute Value of Changes |
|
|
$764m |
Something that struck me about this table was the broadband revenue decreasing! This is partly explained by the reclassification of some earnings. From p9 of "Updates to External Reporting" document issued in December 2018.
"To provide a clearer view of broadband and managed data performance, revenues associated with managed internet services have been moved from broadband revenue to managed data revenue."
For the FY2018, year this policy change reduced broadband revenue from $685m to $665m. Concomitant with that, Managed Data, Networks & Services revenue increased from $190m to $207m. Yet even with that adjustment broadband revenue was flat. An example of customers expecting more and more for the same price?
$764m/$3,565m = 21%
That is a measure of how much the business has changed in five years. Although overall revenue has barely changed, more than one in five dollars taken in has shifted to a different product category. I would suggest that is rather a large operational change. In fact I would struggle to think of any other NZ business that has transformed this much over the last five years (bar some start ups). Sometimes what you think you see, a boring steady dividend payer, is not a boring as you think it is.
I regard analysing Spark as an exercise in matching up the growth initiatives against the 'growth lost' in declining market segments. The hope being that when the 'declining bit' stops going down, Spark will transition to become a growth company.
SNOOPY