SPK- Spark NZ (TELCO)

[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]

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

Damn.

$3.74(1+r)^16.5 = ($4.23+$3.58)
=> (1+r)^16.5 = 2.088
=> (1+r) = 1.0456
=> r = 4.56% compounding

So the return is a little better than you calculated SailorRob. But you also have to remember that this return is 'after tax'. So the equivalent gross return based on a 28% company tax rate is: 4.56%/0.72 = 6.33%

That might not sound so spectacular in today's market. But according to my 'indicative interest rate record', bank interest rates for term deposits were about 4.5% over that period, before dropping to the Covid lows of nearly nothing and rising to circa 6% today. So I think over that 16.5 years you would have ended up earning about 2 percentage points above the equivalent money in bank term deposits. That would make you nearly 50% better off in cash received terms. An regular income incremental amount definitely worth having.

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

Of course. I don't have a boat to scrub barnacles off, so obviously I have heaps of time for an exercise such as this ;-P

$3.96(1+r)^31 = ($4.23+$8.22)
=> (1+r)^31 = 3.144
=> (1+r) = 1.0376
=> r = 3.76% compounding

So your 'less than 4%' was a good guess. The equivalent gross return was 3.76%/0.72 = 5.22%. That is probably closer to what you might get if you were invested in term deposits over all that time. But IIRC my own main reason for beginning to bump up in size my own modest size Telecom holding 'late last'/'early this' century was because I thought I was going to make my fortune in the dot.com boom. Just buy into anything connected with the internet and you would strike pay dirt was my thought. As it happened I didn't make my fortune by investing in Telecom. But I didn't lose my shirt either. All told, considering my recklessness in those earlier days, to come out of it all with a perpetual 5.22% gross return at the end of it all was probably a reasonable result.

SNOOPY

[winner69]

Major von Tempsky was keen on Telecom / Spark

What happened to the Major

[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

[Mrbuyit]

My spk shares have put a lot more in my back pocket than oca in a similar timeframe.. first purchased June 2018 for 3.71, I see they are down a dollar or so in the last few months but I don't really follow the sp .. I suspect other spk holders also don't really follow the price too closely?

Will the next 6 years be a different story.. well perhaps.