Spark’s full-year numbers were dominated by a $583 million one-off gain related to the sale of a 70 per cent stake in its cell tower network — partially offset by a negative one-off: the $54m booked for the wind-down of Spark Sport.
But its underlying results delivered in line with analysts’ expectations.
Spark overcame concerns about a soft first half to deliver a strong end to its 2023 financial year, said Jarden analyst Arie Dekker.
The telco was able to increase mobile pricing in the second half, which contributed to a 9 per cent rise in mobile revenue to $980m.
Dekker said the strong mobile performance — and Spark’s prediction of a further 5 per cent mobile growth in the current financial year — was a key reason to be confident the telco could meet its operating earnings guidance for FY2024 ($1.22b to $1.23b vs the adjusted $1.19b delivered today).
Forsyth Barr analyst Aaron Ibbotson told the Herald numbers were very close to estimates. In that regard, “It was a boring result. But if you’re a telco, boring is good.”
While it had long been flagged that the full-year dividend — stuck at 25cps for seven years, first by the cost of a new international cable, then Covid — would rise to 27cps, investors would be glad to have it in the bag, Ibbotson said.
And while the FY2023 profit payout was buoyed by the cell tower sale, investors would also be pleased to see the increasing free cashflow, which should underpin another dividend lift.
Free cashflow increased by 12.9 per cent to $489m in FY2023 and is forecast to jump to between $490m and $530m in FY2024. Spark says that should translate to a dividend of 27.5cps.
It wasn’t all roses, however. On an analyst call, Morningstar’s Brian Han raised the fact that broadband revenue fell 2 per cent to $626m.
Spark chief executive Jolie Hodson said that while a competitive market was squeezing broadband margins, Spark now had 30 per cent of its customer base on fixed-wireless (which delivers broadband to a home over Spark’s mobile network, cutting out Chorus and the big clip of the ticket it takes on landline connections). Hodson said Spark was still on track to have 35 per cent of its broadband customers on higher-margin fixed-wireless plans by 2026.
Cloud, security and managed service revenue, down 2.2 per cent to $436m, was another weak point. Jarden’s Dekker said it should be a different story in FY2024 as data centre upgrades start to deliver higher-margin revenue.
While rival One NZ has heavily promoted its mobile-to-satellite partnership with Elon Musk’s Starlink, Spark continued to take a lower-key approach.
Hodson said Spark was on track to trial satellite-to-phone texting by the end of this year, with a commercial rollout of the service by the end of next year, matching One NZ’s schedule.
Like 2degrees, Spark is partnering with Lynk, a US firm that is launching a low-Earth orbit satellite network (with help from Christchurch-based Dawn Aerospace) that it hopes will rival Musk’s Starlink. Meanwhile Spark, One NZ and 2degrees have all signed on as resellers for Space X satellite broadband plans for business.
Was it dangerous to get into bed with Musk? Could his swarm of satellites move from being “celltowers in the sky” filling mobile network gaps, to one day eating the telcos’ lunch, providing punters with all of their voice, text and mobile data needs?
“That’s not a concern we’re focused on,” Hodson said. “When you look at what they’ve delivered to date, it’s still a long way from our mobile service.”
In today’s investor presentation, the emphasis was on satellite-to-mobile’s potential for boosting resiliency in disaster scenarios like Cyclone Gabrielle, where telcos drew so much flak for mobile blackouts. Today, Hodson reiterated that mobile infrastructure relied in part on power networks, roads and bridges. Infrastructure upgrades had to take place across the board, she said.
Spark shares were up 0.1 per cent to $5.05 in late trading, with the NZX50 down 0.6 per cent.
Dekker has the telco on an “overweight” rating, with a 12-month target of $5.11.
Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.