Spark New Zealand Ltd provides digital services to individuals and businesses in New Zealand and operates in and operates in a number of business areas,Spark Home, Mobile & Business provides products, services and support to consumer and small business customers as well as a full range of services and content, fibre-based data and voice services and copper broadband, 3G & 4G mobile and nationwide Wi-Fi zones. Spark Digital is a provider of solutions for the rapidly changing needs of business, enterprise and government clients to help them to satisfy the demands of an increasingly globalized, connected and mobile customer base. Spark Connect develops and operates Spark New Zealand’s key data and communications networks and products, including the fiber transport, mobile and broadband networks, and ensures that the IT support systems are aligned with the Group’s business objectives. Additionally, it also provides critical support services to such as billing, credit collections and the management of Spark Connect’s buildings and leasehold property. Spark Ventures is focused on six core and adjacent areas namely Connectivity including Skinny mobile, Bigpipe broadband and Wi-Fi; Content including Lightbox TV and Cloud services; Commerce including m-Wallet, m-Payments and m-Advertising; Data and applications including Smart Data monetization and applications for Industry verticals such as health, rural and education; Smart Life including smart living and smart business.
Key Financials (source - Company Reports)
Market share buyback
In June 2015, the company announced an on market share buyback of up to 40,000,000 ordinary shares for an aggregate value of up to NZ $100 million for the rest of the calendar year 2015. The ordinary shares will be acquired on the NZX Main Board, the New Zealand stock exchange on which the company is listed in that country. The company reported that following its recent divestments including Telecom Rentals Ltd and its 60% investment in Telecom Cook Islands, the balance sheet is now under leveraged and the purpose of the share buyback is to return its gearing to a more appropriate level. The company remains committed to maintaining a single A band credit rating from Standard and Poor's.
Revenues (Source - Company Reports)
Update for investors
2014 was a year of enormous and far reaching change for the business and the company has continued the relentless execution of the clear-cut strategy and objectives set two years ago. A solid foundation has been laid on the new company brand and customers are at the heart of everything the company does. Spark Home, Mobile & Business has provided customers in New Zealand with higher quality broadband and mobile services by giving them new experiences to share and thanking them for their loyalty with programs such as the Automated Thanks Machine. Spark Digital continues to support big businesses by providing them with data centre, IT and Cloud capabilities to enable the delivery of their services and products more efficiently and effectively. Spark Ventures continues to grow the portfolio of new businesses especially successful launch of Lightbox which is providing better choices of online entertainment. Spark Connect is building the best data network in the country and UFB is available increasing the coverage of popular holiday spots. The Spark Foundation uses its ownership of Givealittle to provide digital technology for the charity sector.
Mobile Connections (Source - Company Reports)
2015 is going to be another big year. Though it is not going to be easy and there are significant challenges ahead of the company, the business is in an excellent position to provide genuine and sustainable growth. The focus will continue to be on customers and the Digital First program will be introduced using new concepts of digital service to provide customers with an outstanding experience.
Half-year report 2015
Among the highlights at a glance were 2.1 million mobile connections 5.4% up over the previous year, net earnings of $ 147 million flat over the previous year, growth of 3.5% in EBITDA at $ 436 million, decline of 2.7% in operating revenues and other gains of $ 1.797 billion, dividend of 9 cents per share up by 12.5% and a growth of 53% in capital expenditure to $ 407 million (including $ 150 million on 700 MHZ spectrum). Other features include the successful rebrand and the rapid expansion of 4G mobile coverage and increased mobile revenue which was up by 2.4%. Broadband connections grew by 5000 over the preceding half-year to a total of 674,000. The Takanani data centre with an investment of $ 61 million was opened providing the premier data centre facility in the country and the Appserv acquisition was completed in July 2014. IT services revenue was up by 6.9% because of the continued strong growth in Revera. Lightbox was launched and the sport joint venture with Coliseum was announced.
Core Capex (Source - Company Reports)
The decline of 2.7% in revenues from continuing operations was largely because of the continuing and historical decline in the use of legacy and voice products. There has been sustained growth in high quality mobile connections of 108,000 over the preceding quarter as total mobile revenues grew by 2.4%. However the market remains extremely competitive particularly in the business segment where revenues have been negatively impacted by continuing reductions in prices and the expansion of data bundles. Operating costs continue to be tightly managed and expenses from continuing operations dropped by 2.4% to $ 1.36 billion. EBITDA was down by 3.5% and includes the impact of non-recurring rebranding costs as well as the higher costs of reorganisation. If these items are excluded, operating earnings were flat year-on-year.
The outlook
The focus for the second half of the year will be on maintaining the pace of execution to continue building on the firm foundation which is already been established. One important process will be the integration of the Turnaround Program into the business and it has already created the financial leeway to enable investment in new growth areas of digital technology. A new strategic program "Digital First" will be launched shortly to complete the digital transformation in tandem with increased internal capabilities of IT systems.
In looking at telecommunications stocks, we believe that the New Zealand market and this company which has a dominant position in that market could provide interesting and lucrative opportunities for investment. It is the largest Internet service provider in the country and the second largest mobile services provider behind Vodafone. It has gone through a period of considerable restructuring and the current price leaves it undervalued in terms of its P/E ratio especially when you consider the growth prospects for the next few years. Because it is not an Australian company, the dividends are unfranked and yet, in the current low interest rate environment, the dividend yield at over 6% is attractive. On these considerations, we would rate the stock as a Buy at the current price of $2.61
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