SPK- Spark NZ (TELCO)

[Snoopy]

What am I missing here, going through some NZX looking for anything of interest.

SPK...

Revenue flat as the Earth for 10 years
Makes 400 like clockwork every year.
And selling for near 8 billion.

WFT???

Why the hell would you entertain paying anything like that??
Only worth $2. share max.

A sailor wafts into an unfamiliar port. Does a quick walking tour of the streetscape, and thinks he knows more than the locals who have lived there for over a decade. Typical. Sometimes the superficial street view hides what has been going on under the hood. Revenues at Spark may not have changed much over 10 years. But I would argue that in terms of business operations, Spark (or Telecom as it was then) is the most 'transformed' company in the NZX20. Look at the table below of product category revenue to see what I mean:

Product Category	Operating Revenue (FY2023)	Operating Revenue (FY2013)
Mobile	$1,470m (+60.0%)	$921m
Voice	$231m (-51.9%)	$480m
Broadband	$626m (+78.9%)	$350m
Information Technology Services	$723m (+38.2%)	$523m
Other Operating Revenues	$825m (-% Not meaningful)	$1,438m
Australia (AAPT)	$0m (-100%)	$477m
Total	$3,875m (-7.5%)	$4,189m
Net Earnings over respective years	$425m (+78.6%)	$238m
Dividends paid over respective years	26cps (+36.8%)	19cps

Calculation Notes

1/ FY2013 Calling Revenue of $520m. Refer graph p26 AR2013.
2/ FY2013 Mobile Revenue: 1.815m x $35/month x 12 = $760m. Refer graphs p27 AR2013. Better estimate from AR2013 p86$926m-$5m=$921m.
3/ FY2013 Broadband Revenue of $350m. Refer graph p26 AR2013.
4/ 'IT' includes 'cloud security and service management' and 'managed data network and services'. This business unit went under the monicker of Gen-i back then (AR2013 p86)
5/ 'Other Revenue' consists of revenue from equipment sales, dividends and other income, and I believe fixed access charges for the old 'landlines'. However, I believe the composition of what is classified as 'other' may have changed over the last ten years. That is why I am calling the percentage change over ten years 'not meaningful' as I am not sure we are comparing apples with apples.
6/ Net earnings for FY2023 have been adjusted to take out the one off effect of the cellphone tower sale:
0.72x($1152m-($583m-$54m)) - 0.72($33m) = $425m

----------------

Navigating market segment changes such as these does not come easily. Spark has been fortunate to have two very competent CEOs in the face of Simon Moutter and now Jolie Hodson who have navigated the choppy waters of the telecommunications seas for we shareholders. And I mean that on an international comparative scale.

Based on your 'fair value' of $2 Sailor, we shareholders would now be looking at an historical gross dividend yield of:

(26c/0.72)/ 200c = 18%

I can see why even you would get excited at that kind of perpetual return Sailorman. I don't fancy your chances though, not with buying Spark shares anyway.

SNOOPY

[Entrep]

A sailor wafts into an unfamiliar port. Does a quick walking tour of the streetscape, and thinks he knows more than the locals who have lived there for over a decade.

i chuckled

[SailorRob]

A sailor wafts into an unfamiliar port. Does a quick walking tour of the streetscape, and thinks he knows more than the locals who have lived there for over a decade. Typical. Sometimes the superficial street view hides what has been going on under the hood. Revenues at Spark may not have changed much over 10 years. But I would argue that in terms of business operations, Spark (or Telecom as it was then) is the most 'transformed' company in the NZX20. Look at the table below of product category revenue to see what I mean:

Product Category	Operating Revenue (FY2023)	Operating Revenue (FY2013)
Mobile	$1,470m (+93.4%)	$760m
Voice	$231m (-51.9%)	$480m
Broadband	$626m (+78.9%)	$350m
Information Technology Services	$723m (+38.2%)	$523m
Other Operating Revenues	$825m (-% Not meaningful)	$1,599m
Australia (AAPT)	$0m (-100%)	$477m
Total	$3,875m (-7.5%)	$4,189m

Calculation Notes

1/ FY2013 Calling Revenue of $520m. Refer graph p26 AR2013.
2/ FY2013 Mobile Revenue: 1.815m x $35/month x 12 = $760m. Refer graphs p27 AR2013.
3/ FY2013 Broadband Revenue of $350m. Refer graph p26 AR2013.
4/ 'IT' includes 'cloud security and service management' and 'managed data network and services'. This business unit went under the monicker of Gen-i back then (AR2013 p86)
5/ 'Other Revenue' consists of revenue from equipment sales, dividends and other income.

He doesn't 'think' he knows more than the 'locals of over a decade' he knows he does.

These locals you're talking about are the ones who have had ZERO % return for 16.5 years? Apart from a few poxy dividends which inflation has done a number on?

Yes margins have improved and no it's not an awful business but it's FAR too expensive.

Correct me if I wrong but the share price is the same as 1993.

What the Sailor will admit he does not know, is why the hell anyone would own this?

Who in their right mind would choose this over Berkshire?

[SailorRob]

Bringing up the locals who have owned the dog for well over a decade is one of the most crazy admissions you could possibly make.

You shoot yourself in the head right away!

[SailorRob]

I would argue that in terms of business operations, Spark (or Telecom as it was then) is the most 'transformed' company in the NZX20

Like saying the most improved MP in the Labour Party...

And who cares?

It's how much cash they make and what you pat for it - all that matters.

Massively competitive industry and revenues have declined dramatically in real terms.

[MauroNZ]

Nothing to do with FIF, just generally aware the NZX has gone nowhere in 5 years and that some companies have had 20 years wiped off the share price, so figured I'd have a quick Look. But nothing remotely interesting apart from retirement sector.

The high quality companies you pay for and any hiccup will see them slaughtered.

It's a desolate wasteland.

This is not far from the truth, I only follow the market a few times a month and a few companies since 2013. It's funny that you'll struggle to find at least five that have grown 10x or more.

Abroad even niche companies like Ferrari (RACE) do much better.

[Snoopy]

He doesn't 'think' he knows more than the 'locals of over a decade' he knows he does.

These locals you're talking about are the ones who have had ZERO % return for 16.5 years? Apart from a few poxy dividends which inflation has done a number on?

16.5 years ago was 2008. On 31st March 2008 the Spark/Telecom share price was $3.74. So not a great capital return but not zero - it is closer to 40cps. Following that time, there was a period where the share price dipped right down into the low $2 range. Some far thinking investors may have bought a few more Spark back in those dark days to lower their average entry price (sounds like the sort of thing even SailorRob might do?)? The 'poxy dividends' you refer to have summed to $3.58 per share since that 31/03/2008 reference date. If that is what you refer to as a 'pox', then I can reveal that I have been quite happy to be signed up to such a 'maxi-pox' over that time-frame. In fact if I can put off seeing the (financial) doctor (i.e. not sell my shares), there is every chance this Spark 'dividend pox' on me will continue!

As for inflation doing a number on my dividends, I may have even spent some of them on holidays over that time (!!!). Even if that was not permissible under SailorRob rules.

Yes margins have improved and no it's not an awful business [B]but it's FAR too expensive.

Correct me if I wrong but the share price is the same as 1993.

According to my records the Spark (or Telecom as it was then) share price on 30th September 1993 was $3.96. So yes not much share price gain for our 'lay on the couch for thirty one years' investor (although now many investors are really horizontal for 31 years?). But the dividend feed over that time has amounted to $8.22 per share. That has bought our 'couch surfing investor' quite a helping of popcorn over the years. And of course you omitted the small fact that between when the share was listed in 1991 and 30th September 1993 the Spark/Telecom share price doubled.

What the Sailor will admit he does not know, is why the hell anyone would own this?

Who in their right mind would choose this over Berkshire?

What was that dividend yield on Berkshire again?

SNOOPY

[SailorRob]

16.5 years ago was 2008. On 31st March 2008 the Spark/Telecom share price was $3.74. So not a great capital return but not zero - it is closer to 40cps. Following that time, there was a period where the share price dipped right down into the low $2 range. Some far thinking investors may have bought a few more Spark back in those dark days to lower their average entry price (sounds like the sort of thing even SailorRob might do?)? The 'poxy dividends' you refer to have summed to $3.58 per share since that 31/03/2008 reference date. If that is what you refer to as a 'pox', then I can reveal that I have been quite happy to be signed up to such a 'maxi-pox' over that time-frame. In fact if I can put off seeing the (financial) doctor (i.e. not sell my shares), there is every chance this Spark 'dividend pox' on me will continue!

As for inflation doing a number on my dividends, I may have even spent some of them on holidays over that time (!!!). Even if that was not permissible under SailorRob rules.



According to my records the Spark (or Telecom as it was then) share price on 30th September 1993 was $3.96. So yes not much share price gain for our 'lay on the couch for thirty one years' investor (although now many investors are really horizontal for 31 years?). But the dividend feed over that time has amounted to $8.22 per share. That has bought our 'couch surfing investor' quite a helping of popcorn over the years. And of course you omitted the small fact that between when the share was listed in 1991 and 30th September 1993 the Spark/Telecom share price doubled.



What was that dividend yield on Berkshire again?

SNOOPY

You're happy with a total return of 4.29% CAGR over 16.5 years?

Damn.

Berkshire dividend is massive, will calculate later if I get a chance, would be extremely difficult to explain to you...

To save me the time, can you tell us the CAGR over that 31 years with dividends, less than 4% I guess.

So in real terms you've lost capital.

Unless you believe the CPI in which case you might have had a 1% CAGR.

Not enough for me snoop.

[SailorRob]

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.

Now that's impressive.

Forget the dividends, that's the obvious part. What you need to LAZER focus on is the retained earnings and what happens to each and every cent.

[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