Spark's half-year profit tipped to drop

Spark customers are unlikely to recieve any compensation following a service outage yesterday. Photo / File

Lower earnings at telco won’t be a surprise as focus shifts to second half, says analyst.

Broker Forsyth Barr is tipping a drop in profit at Spark when the NZX's biggest listed company reports its half-year result tomorrow.

Forsyth Barr has issued an underperform rating for the telco, which has a market capitalisation of $6 billion, saying it was concerned by relatively low earnings before interest, tax, depreciation and amortisation and declining high margin fixed revenues. Despite this, the result was not likely to include any major surprises, said FB analyst Blair Galpin.

Galpin forecast $160 million of net profit after tax for the six months ended December 31, down 4 per cent on the previous year. He said the focus would be on the second half to buoy the full-year result. "Effectively in the second half of the year Spark's going to have the full upside from the lower pricing that the Commerce Commission confirmed at 1 December as well as the price increase they pushed through last year which started in February."

A solid 2014 year saw the share price rise by almost 40 per cent. In the company's full year result for 2014 in August, chairman Mark Verbiest said the year had set a good base for 2015 and that the company had an objective to achieve modest earnings growth in the current financial year.

The company has committed to a number of investments, including internet TV service Lightbox and ultra fibre as well as the 2300km transtasman submarine cable.

First NZ Capital analyst Arie Dekker said the result would depend on whether Spark's growth had offset substantial headwinds in the business. "[The result] will [also] depend on how much cost has come out of the business," Dekker said.

"If everything goes in the right direction, it's whether those [factors] are sufficient to offset the ongoing declines we would expect in their fixed business," he said. "So we would expect voice calling revenues to go down and [public switched telephone networks] wholesale service to go down and those are things that are quite high margin."

Galpin and Dekker both expect Spark to have increased its mobile share. Galpin said: "When Vodafone put their numbers out for the quarter end December not long ago, they'd only moved slightly so we just have to wait and see what's happened there but we expect from looking at what's happened in the market Spark has done quite well in comparison to Vodafone."