Dividends will be a key point of focus as Spark reports its full-year result on Wednesday morning - and there are two factors that could drive an increase in the telco's long-stalled profit payout, or a share buyback.
One is direct. In early July, Spark sold 70 per cent ofits passive celltower network to the Ontario Teachers' Pension Plan Board in a $900 million cash deal. The deal is subject to Overseas Investment Office approval.
For Spark investors, the successfully-concluded sale could mean a bump in the telco's dividend, which has been flat at 25cps for seven years, or a share buy-back.
Forsyth Barr analysts Aaron Ibbotson and Matt Montgomerie said, "We would expect some capital release should the announced part divestment of the TowerCo be successful."
TowerCo is the name of the subsidiary Spark created ahead of the sale, and in which it will retain a holding of 30 per cent.
"A return to even modest dividend growth could be a meaningful positive catalyst for the stock," Ibbotson and Montgomerie said.
In a note released last Friday, the pair predicted Spark would scratch its seven-year itch and finally increase its dividend - albeit by a modest 1 cent per share to 26cps.
Morningstar analyst Brian Han says proceeds from the Tower sale will bolster Spark's balance sheet, but says it's an open question whether the funds are used to fortify the dividend, or are salted away to help the telco "weather the likely treacherous economy ahead."
The second potential dividend boost would be indirect. Spark's dividend from The Southern Cross Cable has been suspended for the past three years as the telco (and fellow Southern Cross owners) have poured money into the new Southern Cross Next trans-Pacific cable.
Spark made its final equity contribution to the new cable in April, and "Next" went live during the first week of July. At its half-year earning, Spark said its Southern Cross dividend (which hit $61m in 2017, before sliding to $50m in 2018 then $15m in 2019) could resume in FY2023.
Analysts will be looking for confirmation that the Southern Cross dividend will indeed return.
However, it might not return to the heights of 2017. Southern Cross now faces competition from the Hawaiki Cable, and Spark's stake in Southern Cross' Bermuda-based parent company was diluted from 50 per cent to 40.7 per cent as new investor Telstra took 25 per cent as one of the mechanisms to fund the new cable.
Return of roaming revenue, or some of it
Beyond the possible dividend increase and return of the Southern Cross payout, the third major element Ibbotson and Montgomerie are picking is a 5 per cent boost in mobile revenue, thanks to the return of international travel.
Border closures blew a $114m hole in Spark, Vodafone and 2degrees' collective annual revenue as high profit-margin roaming revenue all but dried up.
During a February briefing on Spark's otherwise strong first-half result, chief executive Jolie Hodson put lost roaming revenue from border restrictions at around $40m.
The CEO said it would likely be 2023 before the segment recovered - though she qualified it might not return to its previous level.
A recent account from a rival reinforced Hodson's point.
Last month, 2degrees CTO Martin Sharrock said roaming revenue was returning after dropping to "almost zero" in 2020 and 2021.
But Sharrock said it was still early days, with outbound roaming revenue steadily increasing but still only at 20 per cent of its pre-Covid peak, while inbound roaming revenue was now at 40 per cent of pre-outbreak levels.
Despite roaming revenue being slow to return, Morningstar's Han said mobile was a strong point for Spark.
The telco's postpaid or contract mobile subscribers are up 10 per cent to 1.4 million from pre-pandemic levels, Han noted.
He added, "And [Spark's] mobile market share is likely now over 42 per cent, from 40 per cent when corona was just a beverage."
Time to sell Spark Sport?
Elsewhere, Jarden analyst Arie Dekker - who is otherwise positive on Spark - said in May that it was time for the telco to sell Spark Sport.
Given the scale of Spark's revenue (which at around $4 billion a year dwarfs Sky TV's $700m or so), sport is a relatively high risk and low reward for the telco.
When Spark entered streaming, it was off the back of British Telecom's high-profile foray into sports. But now the tide is turning, with the UK telco offloading BT Sport to a Eurosport UK (a subsidiary of Warner Bros Discovery), while Aussie telcos are scaling back their sports streaming.
Spark ceded rights to the English Premier League (its first major rights win) to Sky, and Sky says it's in advanced talks with World Rugby - with industry scuttlebutt holding that the Rugby World Cup will revert to the pay-TV broadcaster, too.
However, at this point there's no indication there will be any substantial update on Spark Sport with tomorrow's earnings.
Spark has guided for full-year ebitda $1.13b to $1.16b, and at its first-half briefing said it expected to be around the "top half" of that range.
Spark shares were recently trading at $5.29. The stock is up 10.4 per cent for the year.
Forsyth Barr has an "outperform" rating and a $5.70 target.
Morningstar rates Spark three stars on its five-star scale, and says its fair value is $5.40 per share.
