Category: Philosophy
An investment philosophy is a coherent way of thinking about markets, how they work to put into practice. It’s a set of core beliefs that you can go back in order to generate new strategies to make it work. The investment philosophy of Investor Desk begins from the perspective that our clients are seeking a relationship which focuses on their short- and long-term goals via the provision of a strategic wealth management plan, coupled with a transparent, flexible and nimble investment solution. Investor Desk embraces a holistic view of a client’s business and personal circumstances and seeks to meet their goals and objectives through best of breed technology and financial products, delivered via a client centric relationshipand service. In the absence of a well-considered strategic wealth management plan, we believe there is less capacity to define an appropriate level of portfolio risk. We believe that asset allocation, and genuine portfolio diversifications are the key drivers of portfolio risk, and that high transparency and liquidity are important for navigating volatile market conditions.
Investment Thesis
- Attractive dividend yield of 5.2%.
- Market-leading position in New Zealand. Dominant market share in Mobile, Broadband and is the leader in IT Services.
- Strong capacity for growth demonstrated across all segments, with IT expected to continue to be a key driver as more consumers and businesses migrate to the Cloud.
- Investments in Broadband and the roll-out of 4.5G should see its lagging broadband segment improve.
- Multi-product offerings provide interesting points of differentiation from other telco providers.
- Implementation of “Agile” leading to further cost reductions and operating efficiencies.
- Increasing customer demand for higher-margin cloud-based services.
- Increases in ARPU growth and connections despite weak industry conditions
- SPK still commands a strong market position and has the ability to invest in technologies and areas which could provide room for growth.
Key Risks
- Unsuccessful migration of copper wire customers resulting in earnings drag in May due to weather conditions.
- More competition in its Mobile and Broadband segments leading to aggressive margin contraction, especially as products become commoditized.
- Risk of cost blowout (for instance in network upgrades or maintenance).
- Churn risk.
- Balance sheet risk (including credit ratings risk) should earnings decline due competitive and structural risks.
- Reduced flexibility and increased net debt if unable to fund total dividend by earnings per share
- Any network disruptions/outages.
1H22 results summary. Relative to the pcp:
- Revenue increased +5.2% to $1,890m, driven by +5% growth in Mobile Services (secured ~60% of total market), +3.2% growth in Cloud, security, and service management (driven by demand for public cloud and growth in the health sector), +27.5% growth in Procurement revenue (driven by national health software licence contract), +7% increase in Others (investment behind future markets continued to gain momentum and Spark IoT connections increased +31% to 623,000), partially offset by -3.9% decline in Broadband (amid competitive market intensity) and -5.2% decline in Voice.
- Opex increased +4.3% to $1,352m as increase in product costs driven by higher procurement volumes and growth in cloud and collaboration and increase in net labour costs (talent scarcity) was partially offset by precision marketing savings.
- EBITDAI increased +7.6% to $538m with margin improving +70bps to 28.5% and management remains on track to achieve 31%.
- NPAT increased +21.8% to $179m, driven by EBITDAI growth, a reduction in finance expense and lease liability interest, and lower D&A.
- FCF increased +61.9% to $183m with cash conversion of 110%, driven by improvement in working capital, EBITDAI growth and lower tax.
- Capex increased +14.7% to $218m, driven by uplift in mobile RAN investment in support of accelerated 5G rollout and increased investment in IT systems.
- Net Debt declined -1.4% to $1,380m leading to net debt to EBITDAI ratio declining -0.15x to 1.2x, within internal threshold of 1.4x and consistent with S&P A- credit rating.
- The Board declared a 100% imputed interim dividend of 12.5cps.
Spark TowerCo subsidiary announced
Management announced plans to transfer its passive mobile tower assets, spanning ~1,500 mobile sites, into a separate subsidiary, Spark TowerCo, to improve utilisation through coverage expansion and increased tenancy, while delivering cost efficiencies as the Company expands coverage across Aotearoa. Management also intends to commence a process in 2H22 to explore the introduction of third-party capital into Spark TowerCo, with more information expected to be revealed in 2H22.
Company Profile
Spark New Zealand Ltd (SPK) is a New Zealand based telecommunications company. SPK’s key services are the provision of telephone lines, mobile telecommunications, broadband services and IT services. Its key product offerings are Spark Home, Mobile & Business, Spark Digital, Spark Ventures, and Spark Connect. The Company operates four main segments: (1) Spark Home, Mobile & Business; (2) Spark Digital; (3) Spark Connect & Platforms; and (4) Spark Ventures & Wholesale.
(Source: Banyantree)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.