SPK- Spark NZ (TELCO)

[X-men]

Well..bull....$4.21....4 weeks to result.. looking good..break the resistance...

[see weed]

Come on people..buy this dividend stock!! Put some of your arvida money on here!

Have been buying since April. Then sp dropped so had to buy another 150,000 in the 3.98 to 4.20 to get my av price down. Quiet hard buying under $4. It went under $4 on only 5 different days in June and out of those 5 days it closed below $4 on only 2 days and the other 3 days it closed above $4. So hopefully 4.50 here we come

[bull....]

Well..bull....$4.21....4 weeks to result.. looking good..break the resistance...

breakout above 4.20 , cross fingers funds want lots for end of mth re-balance

[X-men]

Yup..with buyback commences after the result!

13.5c dividend less than 2 months!!

[Louloubell]

I'm not a holder of Spark, but have a question for my learning. How can a company pay out more in dividends than they earn? I can understand if this would be a one-off, but not as a regular practice.

[Aaron]

I'm not a holder of Spark, but have a question for my learning. How can a company pay out more in dividends than they earn? I can understand if this would be a one-off, but not as a regular practice.

Just to open the debate as I have only taken 5 minutes to quickly look at the financial statements so take what I say with a grain of salt.

The Operating cashflow for Spark has been roughly $800mill for the last four years or .43 cents a share (I understand they may have been buying back shares which would improve per share earnings, buybacks should be made illegal again, if there is excess funds and nothing better to invest in pay out a bigger dividend) at 1,845 mill shares and dividends have been .27cents per share.

Reported earnings include depreciation and amortisation of roughly $500mill which is a noncash expense.

That is my guess but Snoopy and others will have a better idea. This might be too simplistic and does not take into account movements on the Balance Sheet.

Sometimes I find the cashflow statement more enlightening than the Statement of Profit & Loss.

[bull....]

this is sparks new div policy

pay-out ratio of ~80%-100% of free cash flow on a long run basis


free cashflow now calculated as


EBITDAI


LESS


Other gains and impairments; Interest; Tax; Lease costs; and
Maintenance capital expenditure


EXCLUDES:
Growth capital expenditure; Spectrum; and Movements in working capital


my rough ball is fcf is 900m odd so there div payout is 50% odd (486 m )

i havnt included maintenance cap exp so figures prob out a little just top of head stuff

[Aaron]

free cashflow now calculated as


EBITDAI
LESS

Other gains and impairments; Interest; Tax; Lease costs; and
Maintenance capital expenditure


EXCLUDES:
Growth capital expenditure; Spectrum; and Movements in working capital

Is another way to say this just EBDA once you take out the interest, tax and impairments in your calculation. Not sure why they take out lease costs and maintenance, I would have thought they are an important part of free cash flow.

[bull....]

Is another way to say this just EBDA once you take out the interest, tax and impairments in your calculation. Not sure why they take out lease costs and maintenance, I would have thought they are an important part of free cash flow.

thats the way spark calc it as stated in there report. i dont have the time to work out maintenance cap to get exact numbers something for snoopy to do. but cashflows cover divs

[Snoopy]

I'm not a holder of Spark, but have a question for my learning. How can a company pay out more in fully imputed dividends than they earn? I can understand if this would be a one-off, but not as a regular practice.

This is a very good question Louloubell. And as you can see I have slightly changed it by adding in two words in bold. The answer to your original (unadjusted) question was easy. Spark just make up the dividend in excess of earnings by paying the difference out of out shareholder capital! At EOFY2022 shareholder capital was $1,475m. If you look at this post:
https://www.sharetrader.co.nz/showth...=1#post1048092

then you can see that up until EOFY2022 the maximum the 'cumulative deferred tax asset liability' never got to more than $47m. That is not big money in Spark terms, in relation to their shareholder capital base ( $47m/$1,475m= 3.2%). But even Spark could not continue to pay out more than they earn forever. For Spark, FY2023 was a 'rescue year' when the net proceeds of the Connexia Mobile Tower sell down came in.

The Connexa sale boosted the shareholder equity coffers to $1,940m AND (very importantly) added some deferred tax assets to the books to the extent (see AR2023 balance sheet p90) that a deferred tax liability of $108m from FY2022 turned into a deferred tax asset of $55m in FY2023! Now I am no expert in tax law and I cannot explain how this has occurred. All I can say is that it has occurred, as evidenced by this quote from HYR2023 p10 which explains most of the difference:

"Due to the difference between right of use assets realised at the date of the transaction, a non-tax deferred tax asset of $126m was recognised."

My best explanation of the situation now is that 'deferred tax assets' can be regarded as 'tax already paid' and can therefore be distributed out to Spark shareholders as imputation credits, despite these imputation credits never being earned in any conventional sense (!). If a tax expert is reading this I am happy to be corrected on this point. But I see no reasonable alternative explanation. Reading between the lines, Spark now has enough 'breathing room' (time) to allow new earnings streams (like datacentres and 5G applications) to push underlying earnings to grow to support the increased fully imputed dividends being declared today.

In summary the answer to your question is 'sleight of hand' (in a legal way) with the tax rules, while the underlying business grows to support the expanded dividend stream. That's how I see it anyway. And thanks for the question. It was a good one.

SNOOPY