Latest / Best of Business / Greg Smith: Devon Funds Head of Retail on Spark selling 75 percent of its data centre business to Australia’s Pacific Equity Partners

Transcript

Greg Smith: Devon Funds Head of Retail on Spark selling 75 percent of its data centre business to Australia’s Pacific Equity Partners · Best of Business

• 0:09
  Speaker 1: You're listening to a podcast from Newstalk ZEDB. Follow this
• 0:13
  Speaker 1: and our wide range of podcasts now on iHeartRadio. He
• 0:17
  Speaker 1: the duplicy Ellen. So.
• 0:18
  Speaker 2: Spark has sold seventy five percent of its data center
• 0:21
  Speaker 2: business to ossie firm Pacific Equity Partners. PEP is paying
• 0:24
  Speaker 2: four hundred and eighty six million dollars for this, along
• 0:26
  Speaker 2: with another eight ninety eight million dollars if performance targets
• 0:30
  Speaker 2: are hit by the end of twenty twenty seven. Greg
• 0:32
  Speaker 2: Smith is the head of retail for Devon Funds and
• 0:33
  Speaker 2: with us Hey.
• 0:34
  Speaker 3: Greg, Hey, good evening, Heather.
• 0:36
  Speaker 2: This is the high end of what we were expecting.
• 0:38
  Speaker 3: A in certainly is. I mean, it's thirty point eight
• 0:42
  Speaker 3: times four year twenty five earnings, So that's a pretty
• 0:45
  Speaker 3: good price, and I just I suppose it reflects the
• 0:47
  Speaker 3: demand for these sort of assets. So, look, it had
• 0:51
  Speaker 3: been well flagged that this devestment was being considered, and
• 0:54
  Speaker 3: it was sort of really something that Spark had to do.
• 0:57
  Speaker 3: There'd been a lot of focus on their debt levels,
• 1:00
  Speaker 3: on protecting the dividend, and the reality is building up
• 1:03
  Speaker 3: these data centers is expensive, so they were going to
• 1:06
  Speaker 3: need to spend a billion dollars on the data center
• 1:09
  Speaker 3: roll out. So it's a good outcome, it's a good price,
• 1:12
  Speaker 3: they can pay down some debt, they can keep some
• 1:14
  Speaker 3: skin in the game, and of course they're getting in
• 1:16
  Speaker 3: this out of the way before the four year results
• 1:19
  Speaker 3: next week.
• 1:19
  Speaker 2: Yeah, and they're obviously using some of the money to
• 1:21
  Speaker 2: pay the dividends. Should they be paying dividends at the
• 1:23
  Speaker 2: moment though.
• 1:25
  Speaker 3: Yeah, I mean that's been the question. So you know,
• 1:27
  Speaker 3: they've effected been paying dividends that they actually can't really
• 1:31
  Speaker 3: afford to. So this is going to change things a bit.
• 1:33
  Speaker 3: You know, this business is being sort of separate into
• 1:37
  Speaker 3: a new standalone company. So we are expecting, with the
• 1:40
  Speaker 3: sort of clarity that we've got now, some sort of
• 1:43
  Speaker 3: dividend cut next week. So the current didn't to give
• 1:46
  Speaker 3: you an idea, is around about twenty five cents per share.
• 1:48
  Speaker 3: That's expected to go down to around eighteen the current
• 1:52
  Speaker 3: share price. That's still a pretty good yield, Yeah, six
• 1:54
  Speaker 3: to sort of seven percent. So obviously investors haven't liked
• 1:58
  Speaker 3: the result today today, will the announcement today so much?
• 2:02
  Speaker 3: Shares down two and a half percent, But I think,
• 2:04
  Speaker 3: you know, it is sort of that fact that now
• 2:06
  Speaker 3: we are going to be facing a cut in the
• 2:08
  Speaker 3: divide and announced next week and the question will be
• 2:10
  Speaker 3: whether it's the final dividend or the dividend for the
• 2:13
  Speaker 3: sort of the forthcoming year. We know the pressure that
• 2:16
  Speaker 3: Spark has been under, you know, business spend has been
• 2:18
  Speaker 3: under the pump. Given the economy, Government spending has been pressurized.
• 2:22
  Speaker 3: So I think what'd be really interesting as well is
• 2:24
  Speaker 3: whether there's any sort of green shoots in that outlook.
• 2:28
  Speaker 3: And yeah, I suppose that's what investors will perhaps be
• 2:30
  Speaker 3: clinging to.
• 2:31
  Speaker 2: Now there's been a fair bit of talk about the leadership,
• 2:34
  Speaker 2: you board leadership, executive c suite leadership as well. What
• 2:37
  Speaker 2: do you reckon is going to change here?
• 2:40
  Speaker 3: Well, I think for the moment that's probably you know,
• 2:43
  Speaker 3: I think the benefit of the doubt is going to
• 2:45
  Speaker 3: be given to the current current leadership. But yeah, Sparks problems,
• 2:50
  Speaker 3: you know are Yeah, a lot of it's been about
• 2:52
  Speaker 3: it out of its control when you look at what
• 2:55
  Speaker 3: the economy has been heavily pressurized. So they're certainly not
• 2:58
  Speaker 3: alone there. There have been here some questions over you know,
• 3:02
  Speaker 3: what they're going to be doing with various assets. We
• 3:04
  Speaker 3: now have some certainty there around the data centers. So
• 3:07
  Speaker 3: I think will be an element of benefit of the doubt,
• 3:10
  Speaker 3: and yeah, what investors are really looking for some sort
• 3:12
  Speaker 3: of signs that things can turn around. I think, you know,
• 3:16
  Speaker 3: for a long time your sparks sort of been out
• 3:19
  Speaker 3: of its depth in terms of you know, I suppose
• 3:21
  Speaker 3: the checks has sort of been going one way. Now
• 3:23
  Speaker 3: you know that obviously now got that going the other way.
• 3:25
  Speaker 3: This data center sales, so it's going to pay down debt.
• 3:28
  Speaker 3: It's going to make the balance sheet in this in
• 3:30
  Speaker 3: better shape. That's going to be good in terms of
• 3:33
  Speaker 3: the credit rating. Agencies are going to maintain that a
• 3:35
  Speaker 3: minus rating. They're going to say, protect the dividend to
• 3:37
  Speaker 3: an extent, all that it's probably coming down, and I
• 3:40
  Speaker 3: think there will be some benefit of the doubt given
• 3:43
  Speaker 3: for the company to sort of get through and hopefully
• 3:45
  Speaker 3: have a better sort of six to twelve months ahead.
• 3:47
  Speaker 2: Brilliant stuff. I really appreciate it. Appreciate your expertise, he agreed.
• 3:50
  Speaker 2: That's Greg Smith, Devin Fund's head of retail.
• 3:53
  Speaker 1: For more from News Talks d B, listen live on
• 3:56
  Speaker 1: air or online and keep our shows with you wherever
• 3:59
  Speaker 1: you go with our podcasts on iHeartRadio,