Stocks’ Details

Chorus Limited

Suspension of Non-essential Activities:Chorus Limited (ASX: CNU) is New Zealand’s leading telecommunications infrastructure company that owns and operates a nationwide fixed-line access network infrastructure in the country. On 27 March 2020, the company announced that it has suspended non-essential field activity to eliminate the risks of spreading COVID-19. In addition to this, the company has reduced its capital expenditure guidance from NZ$660 million to NZ$700 million, to a new range of NZ$610 million to NZ$650 million. It is worth noting that the company has not made any change to its FY20 EBITDA guidance of NZ$640 million to NZ$655 million.

Board Changes:On 30 April 2020, the company notified regarding the appointment of Kate Jorgensen to its Board as an IndependentDirector. He will also become a member of the Audit and Risk Management Committee from 1 July 2020. The company also notified that Jon Hartley, founding director of Chorus Limited, is going to step down from the Board effective from 31 August 2020.

H1FY20 Results Highlights:For the half-year ended 31 December 2019, the company reported net profit after tax of NZ$31 million and EBITDA of NZ$332 million. The half-year results benefitted from operating cost reductions and strong broadband connections growth. Over the period, the company’s total broadband connections increased by 10k to 1,206,000. For the half-year period, the company declared an interim dividend of 10 cents per share.


H1FY20 Results Overview (Source: Company Reports)

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)


*1 NZD = ~0.93 AUD

EV/EBITDA Multiple Based Approach (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months,

Stock Recommendation: Over the past six months, the stock of CNU has increased by 24.96% and is trading close to its 52 weeks high price of $7.360. The company is currently working with the broader telecommunications industry to support its delivery of essential connectivity. Its fixed-line network is in very good shape to support the significant increase in bandwidth demand, as people now work and learn from home. We have valued the stock using an EV to EBITDA multiple based illustrative relative valuation method and have arrived at a target price with low double-digit upside (in % terms). Considering the aforesaid facts, the company’s recent initiatives to reduce capital expenditure, its decent H1FY20 performance and the expected upside in the valuation, we give a “Hold” recommendation on the stock at the current market price of $6.990, down by 0.285% on 1 June 2020.

Spark New Zealand Limited

Preparing for 5G Rollout:Spark New Zealand Limited (ASX: SPK) is a telecommunications company that  provides digital services to individuals and businesses. The company recently announced that it has secured 3.5GHz spectrum for the rollout of a full suite of 5G services. The company is now planning to switch on 5G sites in a number of major centres and regions across the North and South Islands over the next year. In order to do so, the company is working with the Government to accelerate the timeline for the longer-term spectrum auction, which is currently scheduled for November 2022.

Issue of A$100 million 6-year fixed rate Bonds: On 28 May 2020, the company announced that it has priced an issue of A$100 million 6-year fixed rate bonds under its existing Australian debt issuance programme. These funds will be utilized to refinance debt maturities and for general corporate purposes. 

FY20 Guidance:The company recently reaffirmed its FY20 guidance, as per which, it expects its FY20 EBITDAI to be between NZ$1,100 million and NZ$1,120 million. Further, the company expects its capital expenditure to be around $370 million in FY20.


FY20 Guidance (Source: Company Reports) 

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)


*1 NZD = ~0.93 AUD

P/E Multiple Based Approach (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months,

Stock Recommendation: The company remains committed to its S&P A- credit rating and continues to have sufficient access to funding. Over the last three months, the company’s stock declined by 8.44% on ASX, and is currently trading above the average of its 52 weeks low and high price level of $3.350 - $4.720. We have valued the stock using a Price to Earnings multiple based illustrative relative valuation method and have arrived at a target price with low double-digit upside (in % terms). Considering the company’s progress in the rollout of 5G, its FY20 guidance, and expected upside in the valuation, we give a “Hold” recommendation on the stock at the market price of $4.060, down by 1.456% on 1 June 2020.

MNF Group Limited

Strong Demand for MNF Products Amid Covid19 Pandemic:MNF Group Limited (ASX: MNF) is involved in providing broadband VoIP phone services to the residential and business markets in Australia. In a recent trading update, the company informed that Covid-19 pandemic is creating increased demand for voice and collaboration technology as work and school continue from home, and the demand for information and connectivity through technology increases. As a result of this, MNF is witnessing strong demand for its core products. Further, the company’s direct business is also witnessing higher than normal usage volumes, due to the increase in the demand for voice services from small business, enterprise and government customers.

Decent H1FY20 Performance:In the first half of FY20, the company reported a surge of 52% in its recurring revenue and EBITDA, which stood at $48.3 million and $16.9 million, respectively. The company’s NPAT stood at $3.7 million in H1FY20, up 20% on pcp. For the half-year period, the company declared an interim dividend of 2.50 cents per share, up 19% on pcp.

H1FY20 Results Summary (Source: Company Reports)

Outlook:Although the external environment predicts a significant degree of uncertainty, the company has reaffirmed its FY20 guidance as per which it expects its FY20 EBITDA to be in the range of $36 million to $39 million. 

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)


P/E Multiple Based Approach (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:The company currently enjoys strong customer relationships, an agile and dedicated team and a robust balance sheet. The company currently has a current ratio of 2.38x, higher than the industry median of 0.81x, demonstrating that the company is well equipped to pay its short-term obligations. We have valued the stock using a Price to Earnings multiple based illustrative relative valuation method and have arrived at a target price with high single-digit upside (in % terms). Considering the strong demand for MNF products amid Covid-19 pandemic, its decent performance in H1FY20, current liquidity position, and expected upside in the valuation, we give a “Hold” recommendation on the stock at the current market price of $5.30, up 1.145% on 1 June 2020. 

 
Comparative Price Chart(Source: Refinitiv, Thomson Reuters)

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