Spark has reported a strong first half with net profit, operating earnings and revenue all heading north.
The telco announced a cell tower spinoff plan and revealed a key contract win as the Government overhauls
Spark has reported a strong first half with net profit, operating earnings and revenue all heading north.
The telco announced a cell tower spinoff plan and revealed a key contract win as the Government overhauls the old district health boards system and centralises health.
Net profit increased 21.8 per cent to $179 million. Ebitda increased 7.6 per cent to $538m. Revenue increased 5.2 per cent to $1.89 billion. A 12.5c interim dividend was declared - flat on last year, and the past seven years - as free cash flow increased 62 per cent to $183m (dividend chasers may find their eye wandering to Chorus, which is now fattening its profit payout as it puts the big-spending years of the UFB rollout behind it).
The only weak spot was sport - where Sky recently seized back English football rights. Sport's revenue grew in the first half, but its full-year contribution will now be "lower than expected considering the loss of [the] Premier League."
Despite Spark Sport's anticipated lower contribution. Spark says it is on track to hit its full-year forecasts. It expects full-year operating earnings to be around the top half of its FY22 Ebitdai guidance range of $1.13b to $1.160b. It also confirmed total FY22 dividend guidance of 25 cents per share.
The telco's headline good news story was a 5.2 per cent gain in mobile revenue to $1.89 billion, which Spark said made it the fastest-growing player in the sector on the eve of the Orcon Group-2degrees merger. Spark said its gain was driven by a 48 per cent growth in its endless data mobile plans, which pushed up average revenue per user (arpu).
Jarden head of research Arie Dekker said, "While progress on infrastructure initiatives for the mobile assets is progressing slowly, Spark has again delivered what we believe it had to with the business underpinned by very strong mobile performance in particular."
Cloud, security and service management revenues grew 3.2 per cent, driven by demand for public cloud and growth in the health sector, Spark said in a market filing.
Spark Health won the first national contract for digital services under the newly established Health New Zealand, which will replace the DHBs, and grew revenues 25 per cent. The total value of the contract is $45m, a Spark spokeswoman told the Herald, though some will be shared with partner Microsoft.
Broadband connections stabilised at 702,000 after several periods of customer losses. Within that, fibre customers increased 5.5 per cent from 395,000 to 402.000 over the half, while higher-margin wireless broadband customers increased 13.0 per cent from 175,00 to 187,000.
Internet-of-things connections increased 31 per cent to 623,000 - although the segment remains a relatively modest earner. It falls under the "Other" category, along with Spark Sport and big data unit Qrious. Collectively, "Other" revenue was $61m vs $57m in the first half of last year.
Spark also announced the creation of Spark TowerCo, with CEO Jolie Hodson noting a trend towards shared mobile infrastructure models overseas.
Vodafone NZ is on the same track. Major shareholder Infratil recently confirmed it is investigating the sale of Vodafone NZ's celltower network.
Hodson said, "We can see globally that shared ownership models are an effective way of improving returns from infrastructure assets that are not critical to competitive advantage. In mobile, our active assets are what drives our competitiveness – including our core network and radio equipment."
Spark puts the book value of its 1500 cell sites at $102m.
Hodson declined to comment on whether Spark had any discussions with Vodafone NZ about its possible celltower sale.
Ibbotson asked about the future of Spark's dividend, given it had been stuck on "a quarter buck" for seven years. Hodson said it was the telco's ambition to grow its profit payout - especially in the context of its goal to hit $500m free cashflow by the end of 2023. But she would not put any timeline on the process, or project any specific figures.
On the same call, Hodson put lost roaming revenue from border restrictions at around $40m. Hodson said it would likely be 2023 before the segment recovered - though she qualified it might not return to its previous level.
UBS's Phil Campbell asked Hodson about industry chatter that the Government might not focus on maximising revenue at the "C-Band" 5G mobile spectrum auction expected later this year.
Hodson replied it was possible that the Crown would hold down spectrum pricing in return for network deployment commitments - which she said could include commitments to bringing 5G to certain rural areas.
But the CEO said telcos were still waiting for details on the auction terms, and the auction date - though she said the recent spectrum deal with iwi should help smooth the way.
Commenting on the overall result, Spark chairwoman Justine Smyth said: "While we continued to experience ongoing disruption from Covid-19 during the half, Spark delivered strong revenue and profit growth, with a standout performance in mobile, a stabilisation in broadband, and continued business digitisation driving cloud adoption.
"We are pleased to see the strategic ambition Spark set back in 2020 coming to fruition, with future markets now making a significant contribution to revenue growth, and targeted investments in simple, digital customer experiences, data and artificial intelligence, and critical infrastructure differentiating Spark in the market."
Spark shares were down 0.7 per cent ti $4.53 in early trading. The stock is down 2.67 per cent for the year.
Forsyth Barr had an "Outperform" rating and a target price of $5.05 going into today's report.
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