SPK- Spark NZ (TELCO)

[bull....]

i forgot to add yest that seasonality july is normally a good mth
since 2015 over 60% probabilty of being a positive mth. of course nothing guaranteed as june was normally good but was a bad one this yr but i guess we have oversold to add to probabilty as well for a bounce in july

aug is normally positive seasonally too. but sept not normally

[Snoopy]

If dividends have been roughly 100% of taxable earnings over the years then imputation credits would be available.

If tax is fully paid on earnings, then any dividends paid from those earnings are 'fully imputed dividends'. So pay out 100% of taxable earnings each year and all of your dividends are fully imputed.

I agree that depreciation is a real cost to a business over the long term but the Connexa sale resulted in a tax free gain on sale so it would appear the towers appreciated in nominal dollar terms.

I would have thought that there would be a large depreciation recovered in the tax adjustments but I do not understand these enough to comment.

What you say would normally be 100% correct Aaron. Except you neglected to add one important bit of information. The towers were sold to Connexa. They are no longer owned by Spark. So there is no depreciation to recover.

Maybe they wrangled the sale to sell the assets at written down book value with a big goodwill portion in the sale.

If you looked at the Connexa books (which we can't do), there would no doubt be a large dollop of goodwill on there, because Connexa bought the towers well above book value from Spark.

More importantly the proceeds of the sale were to benefit the shareholders, which I guess it has with reduced debt and sharebuybacks.

Yes, except that at EOHY2024 debt had risen to $1,587m from just $1,052m six months earlier (FY2023 balance date): All that investment in 5G and datacentres you see..... And I notice that the bank debt at EOFY2022, before the tower asset sales occurred was $1,526m. So in the the 18 months to December 2023, covering the period of the cell tower sales, bank debt has actually gone up a bit.

Regarding the share buybacks the share price has gone from just under $5.50 to just under $4.50 over the last couple of years. Wouldn't the share buyback make the remaining shares more valuable?

In theory yes. The same profits spread over less shares, would point to the remaining shares being more valuable. The number of shares on issue after the buyback ended in December 2023 was 1,814,2m.. There were 1,871.6m shares on issue at the June 2022 balance date. So the increase in value of each of the shares remaining, as a result of the buyback program is theoretically 1871.6/1814.2= 3.16% per share over the last couple of years. Nice to have. But the reality is that this gain has been overwhelmed by other negative market factors over the last two years.

Those willing to look through the current short term market conditions, and so have consequently been buying SPK shares over the last three months (like me) are of course set to benefit from the buyback when the share price rises that extra 3.16% - eventually.

A great big dividend would have been better, but maybe they did not have the imputation credits to cover it.

Correct. Spark used all the imputation credits they had (and more apparently) to pay juicy fully imputed dividends. Any more return via dividend would likely be unimputed. So the capital efficient way to repay further cash, on top of the fully imputed dividend payments, to shareholders, is via the mechanism of a share buyback.

SNOOPY

[kiwikeith]

Correct. Spark used all the imputation credits they had (and more apparently) to pay juicy fully imputed dividends. Any more return via dividend would likely be unimputed. So the capital efficient way to repay further cash, on top of the fully imputed dividend payments, to shareholders, is via the mechanism of a share buyback.

SNOOPY

As Buffet points out, if a company is buying back shares at less than the intrinsic value, it is creating value for the remaining shareholders. If it buying back shares at more than intrinsic value, it destroying value for the remaining shareholders.