One observer said it must have felt like the last days of Rome in the Spark head office "as the share price burned" in response to its first-half FY2025 result. Photo / Cole Slawson
Reaction to Spark’s first half FY2025 result was brutal as weak earnings came in under a twice-lowered forecast.
Around $1 billion was wiped off the telco’s market capitalisation in the hours after it was announced.
“It must have felt like the last days of Rome in the Spark head office on Friday as the share price burned,” Craigs’ Geoff Zame wrote the Monday after the shocker result delivered on February 21.
Yet even then Zame said the stock was oversold.
In a July 31 note, he reiterated his overweight rating and a $3.13, 12-month price target.
Spark shares were recently trading at $2.50 for a $4.7 billion market cap. The stock is down 43% for the year.
Spark will announce its earnings for the year to June 30 on August 20.
Tech Insider sees potential for the long-beleaguered Spark to deliver several bits of good news in or around its full-year earnings. All five developments see it back on the front foot.
1. Spark has said it will launch a mobile-to-satellite service in the New Year, via a US operator – who is unnamed, but there are strong indications its name rhymes with Farlink and has a famous South African-American billionaire as its CEO.
2. Spark is also said to be close to finally naming an investment partner for a planned $1b data centre construction push.
3. Internal Affairs is planning a one-stop “Government App” – which it says will be a
On July 24, Spark “trust tech” data spin-out Mattr and digital design shop Dave Clark NZ were selected as the winners of a tender to build the Government App. A price tag hasn’t been put on it yet, but it could turn into a major and ongoing piece of work and help land other major contracts. (Mattr is 98% owned by Spark and 2% by its founder, ex-Spark chief digital officer Claire Barber).
4. Spark banked a windfall $47 million on June 23 as Hong Kong conglomerate CK bought out its ASX-listed subsidiary, Hutchison Telecommunications Australia – in which Spark owned a 10% stake (dating from its Telecom days and a never-realised plan for a 3G partnership). The cash proceeds arrived in July, but will help with the FY2026 outlook delivered with results.
5. After a slow first half, Spark’s drive to save $80-$100m in costs seemed to gain steam in the second half. In April it announced an expanded contract with Indian outsourcing and offshoring giant Infosys, and in May 180 network operations roles were outsourced to Nokia (once a marquee handset brand and now a global giant in mobile networking infrastructure that runs outsourcing centres in two cities in India for global clients, as well as local operations).
The changes won’t put Spark on any union’s Christmas card list, and won’t cheer ex-Spark staff going for a half-size pool of Nokia jobs with no guarantee of the same pay and conditions. But they will go a way to meeting the expectations of analysts like Morningstar’s Brian Han, who said the telco was years late in addressing what he saw as a “bloated” cost structure.
6. A boardroom refresh will see three new directors arrive between Spark’s full-year earnings and annual meeting: ex NZ Super Fund director and current NZX and Milford director Lindsay Wright; former Mercury, Genesis Energy and Trustpower executive Vince Hawksworth; and San Francisco-based tech executive Tarek Robbiati – now at fast-growing Pure Storage and formerly at Telstra and US telco Sprint (now T-Mobile), where as CFO he was part of a major restructuring. The successor to chair Justine Smyth is expected to come from their ranks.
After the constant first-half revisions, culminating in an earnings miss, analysts see Spark meeting its guidance in a steadier second half.
Mobile service revenue declined 3.7% to $491m in the first half, “driven predominantly by shrinking mobile fleets following customers’ headcount reductions and price competition in the enterprise and government division,” Spark said in a market filing.
“Market share data indicates Spark lost a similar level of customers in the second half,” Zame says.
He sees average revenue per user (arpu) buoyed by price increases but offset by “ongoing competition in corporate”.
New competition has been especially keen from 2degrees – once driven by Tex Edwards and his temperamental photocopy but now owned by the deep-pocketed Macquarie and Aware Super.
In landline broadband, Zame doesn’t see any surprise in Spark’s total connection numbers but says Chorus data indicates customers have been switching to cheaper plans.
The tough economy was flagged as a major pain point in Spark’s first-half result.
Revenue from IT services, the negative trending problem child of the past three years, is expected to plateau at its first-half level, Zame says.
Craigs sees full-year FY2025 ebitdai (earnings before interest, taxes, depreciation, and amortisation and investment income) of $1.053 billion v the analyst consensus of $1.053b and Spark’s guidance of $1.04b to $1.1b.
Spark has stuck by its full-year FY2025 dividend forecast of 25 cents per share.
Looking ahead, the telco has already said that its Hutchison Telecommunications Australia cash will go to paying down debt and emphasised the need to apply any new capital to its data centre expansion plans amid the artificial intelligence (AI) boom.
But Craigs sees the profit payout reducing to 18 cents per share (from its previous estimate of 20cps) in FY2026, with 18.5cps in FY2027 and 19cps in FY2028.
Morningstar’s Han earlier said, “We cut our dividend per share forecasts by around 40% to 15cps from FY26 and project a hiatus at this level for a few years.”
Jarden’s Arie Dekker (overweight with a $2.80 12-month target) says Spark is “unlikely to surprise” with its second-half numbers, in contrast to the first six months.
But he says it’s also time for Spark to “open up” about its plans. Jarden wants to see a “clean sheet review” of the telco’s IT business.
And in the context of “a questionable record on ventures outside its core” business, Dekker says it’s time for the telco to “shine a light on Mattr” and other new initiatives.
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.