Spark half year profits rose to $158 million from $145 million last year. Photo: Dean Purcell.
Spark half year profits rose to $158 million from $145 million last year. Photo: Dean Purcell.
Financial services business Morningstar has just released an equity research report looking at Spark, outlining what the bulls and bears say about the local sharemarket's biggest telco.
"Bulls say Spark New Zealand is the largest and provides the most diverse range of telecommunications services in New Zealand. These characteristicsprovide reasonable diversity and will allow the company to execute a product-bundling strategy," it says.
"Spark New Zealand has a high-quality 3G network and has secured the greatest capacity in recent spectrum auctions. With low penetration of smartphones in New Zealand, increased adoption of these devices will lift average revenue per user.
"Free cash flow generation is strong despite ongoing requirements to invest in networks, technology and spectrum," the Morningstar report said, before placing a hold recommendation on the stock, which closed yesterday at $3.15 but which has been trading as low as $2.35 in the last year.
The report also took a look at the major risks faced by Spark. With a $5.7 billion market capitalisation, Morningstar says Spark faces aggressive competition and might not be able to hold its leading position.
"Bears say aggressive competition may continue and place downward pressure on earnings and cash flow. Growth in mobile, broadband and IT services may not offset structural declines in fixed-voice telephone. Failure to stay in front of the technology curve and lack of reinvestment could result in redundant assets," said the analysis.
