Stocks research house Fat Prophets changed its buy recommendation on Spark New Zealand to sell after news that chief executive Simon Moutter is stepping down.
News that Moutter will be replaced by Jolie Hodson "has come as a surprise and is strange timing-wise in our view, given the host of new management initiatives which still have time to run (Agile), or have only just been launched (Spark Sport)," said Greg Smith, head of research at Fat Prophets, which operates offices in London, Sydney and Auckland.
According to Smith, the transformation under Moutter has been impressive. Although his replacement has held senior executive positions during the company's repositioning, "it does feel like the timing of the CEO transition is a year or so early."
Chair Justine Smyth announced Hodson's appointment from July 1 earlier today, saying the board's succession planning gave internal candidates the chance to shine over an extended period of time.
Hodson joined Spark in 2013 as chief financial officer from liquor group Lion and has led a number of major programmes related to the company's transformation under Moutter, including driving growth strategies in cloud and IT services.
In 2016 she swapped the CFO role to take on responsibility for Spark's consumer and retail operations, large corporate and government customers, and cloud services businesses.
Smith said Fat Prophets has backed the company's turnaround plan under Moutter's leadership since April 2013, issuing an initial buy recommendation around the $2.10 mark.
"At the time most brokers were negative on the company but we had confidence the envisaged transformation of what was then Telecom Corporation of New Zealand would be successful," he said.
Smith said that transformation panned out, with not only a name change and cost-out programme, but also a disruptive story, with Spark putting pressure on Vodafone in mobile, and pursuing other digital earnings drivers, including the move into streaming entertainment and sports content.
"We do harbour some concerns that with the job not quite done yet, a layer of risk has now been added by a change at the top. Particularly if current initiatives are not executed on properly, or indeed should there be a change of strategic course. We are therefore exercising prudence and changing our rating on Spark New Zealand, and taking some strong profits off the table," he said.
The stock last traded at $3.645, down 3.4 per cent on yesterday's closing price.