Stocks’ Details

Spark New Zealand Limited

Extension of Credit Facility: Spark New Zealand Limited (ASX: SPK) provides telecommunication services. The market capitalisation of the company stood at $8.25 billion as on 8^th February 2021. In the month of November 2020, the company announced that its wholly-owned subsidiary “Spark Finance Limited” has extended the term of its NZ$200 million committed revolving credit facility with Westpac New Zealand Limited by three years to 30 November 2023. During FY20, the company recorded revenue amounting to $3,623 million, reflecting a rise of 2.5% year over year. In addition, the company maintained its momentum to achieve mobile service revenue growth of 3.9%, and double-digit growth in cloud, security, and service management revenue, which increased by 10.8%. During 2H FY20, the company paid a final dividend of 12.5c per share, which brought the full-year dividend to 25c per share.

Key Financials (Source: Company Reports)

Outlook: Looking forward, the company expects to witness significant opportunities for growth in IoT, as New Zealand transitions to future ways of working and pursues productivity improvements in all sectors. The company has scheduled to release its 1H FY21 results on 24^th February 2021.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The company closed FY20 with a cash balance of NZ$53 million. The stock of SPK has provided returns of 1.81% and 2.30% in the last three and nine months, respectively. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price with an upside of high single digit (in percentage terms). On the technical analysis front, the stock has a support level of ~$4.145 and a resistance level of ~$4.591. Thus, in light of the decent growth in revenue, extension in the credit facility, and returns in the past months, we give a “Hold” rating on the stock at the current market price of $4.450 per share, down by 0.225% on 8^th February 2021.

Vocus Group Limited

Acquisition of Proposal Offer from MIRA: Vocus Group Limited (ASX: VOC) is a vertically integrated telecommunications provider, operating in the Australian and New Zealand markets. The market capitalisation of the company stood at ~$2.72 billion as on 8^th February 2021. Recently, the company announced that it has received a confidential non-binding, indicative proposal from Macquarie Infrastructure and Real Assets Holdings Pty Limited and its managed funds (MIRA) to acquire 100% of the shares of the company through a scheme of arrangement at a price of $5.50 per share. The Board of the company is of the view that the proposal is in the best interests of Vocus shareholders to explore the potential for a transaction with MIRA after consideration by the Board and its advisers. However, the Board is not certain about the execution of the proposal and advised the shareholders not to take any action in response to the Proposal.

During FY20, the company reported statutory revenue amounting to $1,778.2 as compared to $1,892.3 in FY19. Underlying EBITDA for the year amounted to $360.5 against $360.1 in FY19. In the month of November 2020, the company advised the market about its plans for Initial Public Offering (“IPO”) of Vocus New Zealand, which is expected to be undertaken before the end of FY21, subject to prevailing market conditions.

Key Financials (Source: Company Reports)

Outlook: The company is well-positioned to capitalise on accelerating market trends. The company added that VNS and New Zealand business are well-placed to be benefited from the accelerating market trends due to COVID-19.

Stock Details: We are of the view that the stock of VOC requires further evaluation as the company is currently under an acquisition proposal. The 52-week low-high range for the stock stands at $1.800 - $5.220, respectively. The stock closed at $4.940 on 8^th February 2021.

MNF Group Limited

Decent Financial Performance in FY20: MNF Group Limited (ASX: MNF) is a provider of broadband VoIP phone services to the residential and business markets in Australia. The market capitalisation of the company stood at ~$363.75 million as on 8^th February 2021. During FY20, the company recorded robust performance, wherein, MNF posted revenue amounting to $230.9 million as compared to $215.6 million in FY19, while recurring revenue witnessed the growth of 27% to $101.5 million. This showcases the success of MNF’s strategy to increase recurring revenue. EBITDA for the year rose by 27% to $38.2 million and, MNF posted NPAT amounting to $11.95 million against $9.94 million in FY19.

EBITDA Growth (Source: Company Reports)

Outlook: The company is committed to its strategic pillars to grow market share, expand its footprint across the APAC region, build long-term strategic relationships with its customers and invest in products to build resilience, scale, and automation in the years to come. MNF has scheduled to release its 1H FY21 results on 23^rd February 2021.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The company seems to be well-placed to support future acquisitions with $46.2m cash and $30m undrawn debt as on 30^th June 2020. In the last one and three months, the stock of MNF has corrected 2.02% and 11.02%, respectively. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price with an upside of high single digit (in percentage terms). On the technical analysis front, the stock has a support level of ~$4.16 and a resistance level of ~$5.375. Therefore, considering the decent growth in top-line and bottom-line, encouraging outlook and good cash position we give a “Buy” recommendation on the stock at the current market price of $4.450 per share, up by 3.488% on 8^th February 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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