SPK- Spark NZ (TELCO)

[Balance]

There has been heavy shorting on the ASX, some of it quite misplaced, so it does provide opportunity on occasion. But it is annoying if you already hold and have enough or lack cash on hand.

Not sure about misplaced given how the sp has fallen and the shorters are already sitting on sizeable gains.

The potential MSCI index exit will hang around like a bad smell until the announcement in Nov which would confirm the exit or not as the case may be.

Meantime, unlikely that there are going to be any volume buyers to take on the shorters given that the fundamentals of Spark are not exactly compelling.

[mike2020]

Have not held spk since it was tel at $9 and that was a long hold averaging down, I was young. But that does not mean it won't end up oversold. I have been watching MIN, shorted down to 29 back to 51. Quickly.

[Snoopy]

A summary of 'the facts we know'.

"Spark had an imputation credit balance of nil as at their balance date of 30-06-2020" (AR2020 p94, confirmed in AR2021 p101)

A 'nil imputation credit balance' @30-06-2020 means that all of the imputation credits paid out after 30-06-2020, must have also been paid up after 30-06-2020. So in the period following EOFY2020, what fully imputed dividends were paid out? We can find this information under financial note 4.5 in the respective annual report(s) titled "Equity and Dividends."

Dividends Paid FY2021 & FY2022 & FY2023 & FY2024	Gross Dividend	Net Dividend	Imputation Credits	Declared HY Net Earnings
Second HY dividend FY2020 (12.5cps)	$319.4m	$230m	$89.4m	$147m
First HY dividend FY2021 (12.5cps)	$320.8m	$231m	$89.8m	$234m
Second HY dividend FY2021 (12.5cps)	$323.6m	$233m	$90.6m	$179m
First HY dividend FY2022 (12.5cps)	$325.0m	$234m	$91.0m	$231m
Second HY dividend FY2022 (12.5cps)	$325.0m	$234m	$91.0m	$165m (2)
First HY dividend FY2023 (13.5cps)	$350.0m	$252m	$98.0m	$298m (3)
Second HY dividend FY2023 (13.5cps)	$345.8m	$249m	$96.8m	$157m
Sub Total		$1,663m	$646.6m	$1,411m
First HY dividend FY2024 (13.5cps)	$340.3m	$245m	$95.3m	$185m
Total		$1,908m	$741.9m	$1,596m

Calculation Notes

1/ Gross dividend = (Dividend Paid)/0.72, Imputation Credits = Gross Dividend - Net Dividend
Note that the first dividend shown in the above table, paid on 20th October 2020 was fully imputed, as have been all dividends since.

2/ The sale of a majority interest in the Connexa cell phone tower business (+$584m), and the write down on account of closing down Spark Sport (-$52m) the tax effect of these two transactions (+$140m) occurred in HY2023. These I would class as 'abnormal transactions'. Normalised profit calculation for HYR2023 using the figures above obtained from Note 5: $837m-$584m+$52m-$140m=$165m. In the next bullet point 3 relating to the full year, profits from the Connexa sale are stated as +$583m. I am not sure why the $1m difference.

3/ For FY2023, I have removed from the declared profit, one off transactions from HY2023 as detailed in HYR2023 Note 2, to create an estimate of the ongoing 'operating profit'. Specifically my adjustments were:
3i/ The $583m one off net gain on the sale of Spark's majority interest in Connexa, the mobile phone tower holding company, was subtracted (AR2023 p95).
3ii/ The subsequent revaluation upwards of the Spark stake in Connexa following the 'Connexa 2 degrees' transaction (a $5m gain in an invested entity valuation) was subtrac)ted (AR2023 p94).
3iii/ One off costs associated with the selling down of Spark's share of Connexa, and dealing with Spark Sport, totalling $30m, were added back.
"$26m for the costs associated with the assets disposed of in the sale of Connexa, $2m for the unwinding of a deferred tax asset associated with the Connexa transaction and $2m of current tax adjustment for the Spark Sport provision. (AR2023 p130 under sub note 1 (under 'income tax expense' header).
3iv/ The $54m loss on the closing of Spark Sport was added back (AR2023 p94).
3v/ Tax effect of Connexa sale, Spark Sport write down and the subsequent dilution effect from the 2 degrees towers being folded into Connexa, diluting the Connexa holding of Spark but also modestly increasing the value of that stake: Total gain of $168m removed. (AR2023 p103).

Total FY2023 Profit Adjustment = (-$583m+$54m-$5m+$30m) -$168m = -$672m (This adjustment applies to HY2023 as well)
Total Normalised FY2023 Profit = $1,135m - $672m = $463m
Total Normalised HY2023 Profit = $837m - $672m = $165m

=> 2HY2023 Normalised Profit = $483m-$165m = $298m

4/ HY2024 Normalised Profit: $157m - $17m - 0.72x $2m = $139m

I have adjusted the profit by removing a $17m gain booked from the sale of property plant & equipment and intangibles and $2m from a gain on lease modifications and terminations. I am recording this information for future reference. That is because for tax purposes what matters is 'declared profits' not 'normalised profits'.

5/ FY2024 profit was affected by one off deferred tax adjustment (non-cash) of $26m. This is because of the change in depreciation laws where the ability to claim structural depreciation on buildings was removed from April 1st 2024. I have adjusted for this because it is not representative of operational performance.

FY2024 equivalent declared full year profit: $316m+$26m = $342m

The full year profit was further affected by a gain on the sale of property plant and equipment (primarily mobile and data centre network equipment) of $62m , gains form lease modifications and terminations of lease arrangements primarily at mobile sites or $36m, and the gain on the sale of an unnamed long term business of $4m.

This equates to a total full year profit adjustment of: -$62m - 0.72x $36m - $4m =-$92m

I am recording this information for future reference. That is because for tax purposes what matters is 'declared profits' not 'normalised profits'.

-------------------------

Now, how does that $741.9m imputation credit total 'paid out' line up with the amount of tax 'paid up' by the company over the SOFY2021 to EOFY2024 reference period? From the respective cashflow statements:

Income Tax paid over FY2021	$188m
Income Tax paid over FY2022	$160m
Income Tax paid over FY2023	$190m
Income Tax paid over FY2024	$189m
Imputation Credit Balance Owing EOFY2024	$67m	(Balance owing was 'nil' at 31/03/2024 (it must have been because this is the end of the tax year) )
Confirmed Total	$794m

At this point I should record that 'cash payments' of tax in any particular year can include wash up payments for a previous year and forecast provisional payments for an ensuing year. So if you compare the tax payments from the cashflow statement for any particular year, and try to compare that to the NPBT for the year multiplied by 28% (the company tax rate), then those two numbers may not be equal, But if you do a sum comparison over many years those single year tax differences will tend to average out.

This $794m total means almost enough tax has been paid to cover those fully imputed dividends to EOFY2024. At EOFY2024, there was a negative imputation credit balance (tax debt owing) on the books of: $67m which 'closes the gap'. Spark are only legally required to 'close that gap' (not have a negative imputation credit balance, and pay that $67m) for 'tax not paid' by 31st March of the following calendar year (31-03-2025). That explains why they haven't done it - a prudent conservation of cash measure no doubt.

The problem that remains is that when we add up the declared operational earnings, in this case for a 4.0 year period, the sum total is significantly less than the net dividends paid out over that same period. Sure if you add back the one off profit from the Connexa sale, then the dividends paid since our reference date are perfectly affordable. But pumping up dividends (and the supporting tax payments to IRD) to allow full dividend imputation from either 'borrowings' or the 'proceeds from asset sales', did not seem sustainable to me a year ago. And it still doesn't now.

SNOOPY

[X-men]

40m shorted according to business news...

So MSCI update will be 6th Nov...4 weeks from now...if Spark is not out... short will cover??

[Jaa]

Are the shorts aware what will happen to NZ yield stocks on October 9?

Lower NZD will also help SPK as overseas funds get better value and buy back in.

[Balance]

Around 40m shares shorted - must be counting on Spark being kicked out of the MSCI index.

Kinda self fulfilling when you think about it - the more Spark gets shorted, the lower the sp and market cap so the greater the likelihood of being exited from MSCI.

https://businessdesk.co.nz/article/m...-be-short-sold

Another 6m+ shares traded today but stock appears to be finding support around the $3.00 level.

Guess the shorts will keep increasing towards the 90m shares which is the number of shares expected to be sold if Spark is exited from the MISCI index!

[Entrep]

Someone on the other site mentioned 90M shares (not $$, shares) to sell if it exits MSCI.

[X-men]

Next week... forecast OCR to be cut 50point n another 50points next Nov...so that will bring the OCR to 4.25%

Term deposit is falling like crazy....1 year is now at 5%

[Panda-NZ-]

You could spend a vacation in Australia and open a savings account. You'll need a residential address (air-bnb) though.

[winner69]

Won't these dastardly shorters need to buy back stock