SPK- Spark NZ (TELCO)

[Snoopy]

Another thing I don't understand, perhaps 'the locals' can help me, is how can a company destroy 31 years of retained earnings.

These retained earnings must amount to hundreds of millions of dollars, and after 31 years they have turned into precisely zero market value.

You are showing your newbie status on the Spark scene with this question SailorRob. Retained earnings at Spark eh? Further back in this thread you will find your answer, which I requote below

This is a comparison between 3 methods of measuring net profit after tax. The first one, most quoted in the glossy Spark presentations is 'Net Profit After Tax'. This is recorded in this table below under the monicker 'Net earnings'. This is how the 'often highlighted in presentations' NPAT is described in Spark's 'Statement of Profit and Loss and Other Comprehensive Income'.

Nevertheless in any year, there are often transactions or expenses that are 'one offs', that take away from the general picture of how the core of the business is doing. As an investor, I look for repeatable results. So I like to look through these 'one offs', so that I can get a better understanding of long term earnings trends. To enable me to do this, I calculate something I call 'normalised earnings', which is the second NPAT measure that I have tabulated.

The third NPAT measure is called 'Total Comprehensive Income' (TCI). This income measure takes 'Net Earnings' but further incorporates changes in values of hedge contracts based around currency swaps and interest rates swaps. Spark is partly financed by overseas capital, which is borrowed at overseas interest rates over period(s) of several years. Hedging contracts can provide certainty of NZ dollar denominated interest payments while these loans are outstanding, and certainty on the NZ dollar capital repayment that will ultimately be required to pay back loan capital at the end of each overseas loan term. Nonetheless, 'annual reporting' is required to reflect fair market values of these contracts should they be suddenly and prematurely cancelled. These annual adjustments are required to be incorporated in annual profit figures by NZ accounting standards, despite there being no plans by Spark to terminate these arrangements early. Typically these annual adjustments are volatile in size and may be positive or negative. This is why TCI is a more volatile measure of net profit than the other two methods I have described. To further add to the volatility, equity investments in companies initiated by Spark management, - as measured by a change in market value of such investments over a year - , are also incorporated into the TCI profit calculation.

Year	Normalised NPAT	Total Comprehensive Income (TCI)	Shares EOFY	Normalised eps	Net Earnings ps	TCI ps	dps (tax paid)	EOFY NTA
FY2018:	($365m - 0.72($10m) ) = $358m	$357m	1835m	19.5cps	19.9cps	19.5cps	24.0cps	84.0cps
FY2019:	($409m - 0.72($15m) ) = $398m	$437m	1836m	21.7cps	22.3cps	23.8cps	23.3cps	79.8cps
FY2020:	($427m - 0.72($35m-$2m) - $10m -$7m) = $386m	$483m	1837m	21.0cps	23.2cps	26.3cps	23.3cps	81.3cps
FY2021:	($384m - 0.72($28m - $16m) ) = $375m	$354m	1867m	20.1cps	20.6cps	19.0cps	25.0cps	80.5cps
FY2022:	($410m - 0.72($26m) ) = $397m	$427m	1872m	20.9cps	21.2cps	22.8cps	25.0cps	78.8cps
Total				103.2cps	107.2cps	113.4cps	120.6cps

Notes

1/ Normalised earnings = Net Earnings (+/-) One off Adjustments. Normalisation details are in post 1994.
2/ eps = (Normalised Earnings) / (Total Shares on Issue, EOFY)
3/ Dividend payments recorded are those paid during the financial year in question (not dividends declared in that financial year).
4/ Gross dividend payments I have calculated in post 1968. After tax dividend figures are the respective gross numbers multiplied by 0.72.

Chair Justine Smyth is the new 'Mother Hubbard'. You now know what is in her (and Spark's) 'retained earnings' cupboard.

SNOOPY

[SailorRob]

You are showing your newbie status on the Spark scene with this question SailorRob. Retained earnings at Spark eh? Further back in this thread you will find your answer, which I requote below





Chair Justine Smyth is the new 'Mother Hubbard'. You now know what is in her (and Spark's) 'retained earnings' cupboard.

SNOOPY

Thanks Snoopy, I didn't have time or inclination to go through in detail, but are you saying they pay out 100% of normalised earnings give or take?

[Snoopy]

Thanks Snoopy, I didn't have time or inclination to go through in detail, but are you saying they pay out 100% of normalised earnings give or take?

I hope you have the time and inclination to take in this answer: "Yep"

SNOOPY

[RupertBear]

I hope you have the time and inclination to take in this answer: "Yep"

SNOOPY

[SailorRob]

I hope you have the time and inclination to take in this answer: "Yep"

SNOOPY

Thanks,

Well that explains everything. What an absolute disaster no wonder it has underperformed cash for 31 years.

How the hell do they expect to grow without retaining any earnings?

I see total assets has ballooned over the last decade while revenue has remained flat, yes the margins have improved a little but hell they have a LOT more assets at work.

Where did the funding come from for this huge asset build if they paid out all earnings?

Oh right, liabilities have increased 50%


Snoopy you should focus you attention on good businesses and out of NZ, a term deposit has given Spark a good run over multiple decade long periods.

[Baa_Baa]

Snoopy you should focus you attention on good businesses and out of NZ, a term deposit has given Spark a good run over multiple decade long periods.

SR, recall that term deposit rates returns have been terrible for many years until recently, and a share like Spark has been a reliable income for investors throughout that time, even now albeit not as attractive vs term deposits as it was for a long time.

I reckon it's as simple as that. NZX mum and dad investors seem to be biased towards regular reliable income, and in that regard SPK has delivered. I bet they don't give a second thought, or even know, how that dividend is created, just that it comes to them, reliably every six months.

There's a few other companies that our income focused NZX investors concentrate on, for the same reasons. Reliable sustained income, regardless of how that is achieved.

[SailorRob]

SR, recall that term deposit rates returns have been terrible for many years until recently, and a share like Spark has been a reliable income for investors throughout that time, even now albeit not as attractive vs term deposits as it was for a long time.

I reckon it's as simple as that. NZX mum and dad investors seem to be biased towards regular reliable income, and in that regard SPK has delivered. I bet they don't give a second thought, or even know, how that dividend is created, just that it comes to them, reliably every six months.

There's a few other companies that our income focused NZX investors concentrate on, for the same reasons. Reliable sustained income, regardless of how that is achieved.

Yes for sure, but from 1993 perhaps rolling 3/5 year term deposits have done somewhere in the 4's.

What is reliable sustained income worth when you lose a decade of dividends in share price decline that doesn't come back.

I understand what you are saying but nobody can argue that this is a good business or has produced good returns over time.

Surely to god the answer for these folk is corporate bonds.

[Snoopy]

Well that explains everything. What an absolute disaster no wonder it has underperformed cash for 31 years.

Not true. Spark has not underperformed cash over 31 years

Snoopy you should focus you attention on good businesses and out of NZ, a term deposit has given Spark a good run over multiple decade long periods.

I think you are starting to get where the real measuring stick for Spark shares should be set.

Yes for sure, but from 1993 perhaps rolling 3/5 year term deposits have done somewhere in the 4's.

What is reliable sustained income worth when you lose a decade of dividends in share price decline that doesn't come back.

The share price has been up and down but there has been no massive permanent decline as you suggest. Unless you deliberately pick a peak and a trough to make your (false) point.

I understand what you are saying but nobody can argue that this is a good business or has produced good returns over time.
Surely to god the answer for these folk is corporate bonds.

Not every investor wants all of their portfolio 'operating to the max' to get outstanding growth. Sometimes having part of your portfolio that produces a steady income return is more the ticket. I guess 'corporate bonds' could provide such a solution. But not being a bond investor myself, I think of my Spark shares as a kind of defacto bond.

Of course, Spark have their own bonds. The SPF570 bond last traded on the market at 5.17%.

OTOH the 'Spark shares bond' last traded on an historical gross dividend yield of (27/0.72) / 423 = 8.87%

So SPF570 at 5.17% or SPK at 8.87%? Hmmm, I seem to be having some difficulty in making up my mind here. Which 'bond' should I choose SailorRob?

SNOOPY