Latest / Best of Business / Jeremy Hutton: Milford Asset Management Equities Analyst on Spark reducing their profit outlook and dividend payout

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Jeremy Hutton: Milford Asset Management Equities Analyst on Spark reducing their profit outlook and dividend payout · Best of Business

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  Speaker 1: You're listening to a podcast from News talks'b follow this
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  Speaker 1: and our wide range of podcast now on iHeartRadio with.
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  Speaker 2: Me now was Jeremy Hutton, Milford Asset Management.
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  Speaker 1: Hey, Jeremy, Evening, Heather.
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  Speaker 2: We'll talk a little bit about Spark. Haven't had a
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  Speaker 2: bad run that's been going on for a little while,
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  Speaker 2: and it's just continued today, hasn't it.
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  Speaker 3: Yeah, another earnings and also the dividend downgrade today and
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  Speaker 3: this was only two months after its previous financial result,
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  Speaker 3: and it's already downgraded as guidance for the FY twenty
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  Speaker 3: five year, so it's preferred earnings metric ebit die by
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  Speaker 3: four percent at the midpoint, and disappointingly just follows, as
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  Speaker 3: you said, a series of downgrades already this calendar year.
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  Speaker 3: And these earnings downgrades have been the main contributor to
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  Speaker 3: the stock being one of the worst performers on the
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  Speaker 3: Interdex this year. So you're unusual for a normally defensive
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  Speaker 3: bluecha telecoms company like Spark.
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  Speaker 2: Yeah, I mean, if you look at what's happened that
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  Speaker 2: the share price is down well over forty percent, you know,
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  Speaker 2: so far this year. So this is basically just to
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  Speaker 2: run of the same kind of news, isn't.
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  Speaker 3: It Yeah, a little bit. Parts of the updates were similar,
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  Speaker 3: but there was also some new news as well. It
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  Speaker 3: did highlight the continued slower mobile division growth and this
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  Speaker 3: is mainly competition from One New Zealand and two degrees
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  Speaker 3: impacting and effectively. Corporates and government ent disease. Are still
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  Speaker 3: looking to rationalize their spend, especially in mobile and IT services,
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  Speaker 3: looking for some more value options. And then in the
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  Speaker 3: new news, Spark cut its ever important dividends as well
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  Speaker 3: by ten percent. This was down to twenty five cents
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  Speaker 3: for next year expected. So the dividend has traditionally been
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  Speaker 3: the most important value diver for Spark, so meaningful cut there.
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  Speaker 2: So what's the concern that's led them to the dividend cut?
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  Speaker 3: Yeah, the biggest issue that the market has had is
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  Speaker 3: over the sustainability of the dividend, and this is due
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  Speaker 3: to the competing demands on its cash flows. So Spark
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  Speaker 3: has been investing a lot in building new data centers,
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  Speaker 3: which are pretty expensive. Of the operating performance has been
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  Speaker 3: struggling as mentioned before, and it wants to maintain its
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  Speaker 3: investment grade credit rating, so and other words, have low
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  Speaker 3: debt levels, so it's balancing a lot of demands. It
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  Speaker 3: did cut back its capital expensure guidance, but looking at
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  Speaker 3: it really simply from here at three cash flow guide
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  Speaker 3: as a midpoint of four hundred and twenty million, but
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  Speaker 3: the dividend at twenty five cents, even at the reduced level,
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  Speaker 3: is still costing four hundred and sixty million, so in
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  Speaker 3: theory it's still borling to pay this divinitent.
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  Speaker 2: Very interesting, Okay. The interesting things that the share price
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  Speaker 2: didn't move very much today was that the market potentially
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  Speaker 2: buying the last downgrade.
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  Speaker 3: Yeah, certainly could have been, especially given how much the
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  Speaker 3: share price has fallen. Parts of this was expected, but
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  Speaker 3: it's probably more in relation to some other news. It's
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  Speaker 3: looking to sell some of its non core assets, like
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  Speaker 3: the remainder of its power CODs heat and it's trying
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  Speaker 3: to find a capital partner to help fund its data centers,
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  Speaker 3: and both of these will relieve some of the pressure
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  Speaker 3: on the balance sheet and cash flow. There is a
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  Speaker 3: very large value case starting to emerge, even on the
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  Speaker 3: lower dividend. The cash yield is over eight percent per year,
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  Speaker 3: and this lines up favorably versus other global telecoms, peirs,
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  Speaker 3: other Intertex dividend stocks, and also favorably against term deposits,
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  Speaker 3: especially in a falling and trade environment. So some value
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  Speaker 3: emerging here interesting.
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  Speaker 2: Jeremy, thanks very much, really appreciate it. Jeremy Hutton, more
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  Speaker 2: fort Act Management.
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