SPK- Spark NZ (TELCO)

[Snoopy]

Could use current CAGR (Compunding Annual Growth Rate) of the existing datacentres to calc FV (Future Value) as well say eg 22 - 24 has been 31% CAGR say then you can est future rev's and then the PV (Present Value) of those rev's (revenues) at the same time apply a discount rate to get the total Value of those future rev's
So say over 10yrs we get FV of those rev stream as worth 600m on current datacentres then that equates to approx worth 33c / share of value at current fully built datacentre's. You need to add their datacentre's to be built on top of my guessing LOL to get get the big picture of rev streams. I forgot to say you would have to guess how much revenue to add to these calc's based on what they might make from upselling there add-on's associated with the datacentre's

I am not sure when Spark management 'decided' that 10% was a reasonable ROI to aim for when running datacentres. Now I have figured out that ROI, as defined by CFO Stefan, and IRR imply the same growth rate (post 2434), it could be that Stefan thought he could make an argument for 10% ROI 'sound convincing', and that the downstream consequences of that decision saw an IRR of 10% naturally fall into place.

I see on slide 23 of the FY2024 result presentation that Spark is targeting 'data centre revenue growth' of 15% over FY2025. That is all very well. But there is a big difference between targeting 15% growth for FY2025 and 15% growth for 25 years! I haven't checked your figure of CAGR of data revenue between FY2022 and FY2024 being 31% Bull. But in the early stages of pioneering a new market, it sounds quite believable. What is not believable is that such a growth rate would continue as the market expands for 25 years. That 'super high growth rate' was only possible because of the low starting base level. Even a growth rate of 15% for 25 years yields scarcely believable valuations based on where we sit today, unless you 'discount those future valuations back'.

The problem with valuing datacentres inside of Spark is that you are trying to measure a 'growth asset' inside of a company that is normally valued on the basis of the income streams it produces. That combination doesn't make a happy melting pot for valuation purposes.

You make a good point Bull, about valuing the up-selling of 'package deals' for other services that might interest data centre customers as well. I am not sure how I would reasonably measure that though! As a conservative assumption, it might be best to think of such 'extras' as a hook for getting new customers into a Spark data centre in the first place? So you might model it as 'increasing the growth rate of new customers signed up', rather than trying to put a dollar value on the extras?

SNOOPY

[Ferg]

My bad.....yes that is correct Snoopy, I was thinking Discount Rate and wrote IRR.....ignore what I said about IRR and substitute for discount rate....hence the reason you see ridiculously high discount rates on long dated projects.

[Snoopy]

whats really up your avenue is some people value datacentre like a property. which i know your pretty good at.

I agree that, around Auckland at least, industrial land is a scarce commodity. So it does make sense to value such land on a 'best use' basis. Data Centres are near the top of that 'best use' list, right now, as far as I can figure out. And you can measure that by looking at the cash-flows being generated from them.

But what about that vacant paddock of land that you have purchased out the back of your data centre? How do you value that? You would have to make guesses as to:

a/ When the ramp in demand was sufficient to require a data centre to be built on that land. (PRFY2014 'slide 11' suggests that Spark are looking at building 118MW of new data centre capacity within the next 5-7 years. C.f. current operating capacity of 22MW).
b/ What the profit margins would be like when the utility in those data centres was sold off, and at what rate that customer take up would occur.

This is where I take issue with CFO Stefan Knight saying that he thinks the IRR on his Spark data centre projects will be 10% (that part of his modelling IMV is believable) but for the uncommitted riskier part of the build out, the IRR would be 15% (IMV not believable).

I think I get where Stefan is coming from (see FY2024 Presentation, slide 11). He is saying that in order for the future 'pink and grey' part of the potential data centre site capacity to be built, he wouldn't do it unless he could get customers signed up to contracts generating an IRR of 15%,

But I come back to the Madison Reidy interview with Jason Boyes on the subject of data centres, and the comment below by Jason

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

https://www.sharetrader.co.nz/showth...=1#post1065389
9:30 Jason Boyes CEO Infratil: "I think it is prudent to assume that (the data market) does become more competitive in the future. It is how we think about any investment. You should not assume your margins will stay the same forever. You should assume they should contract to a pretty stable norm over time. That is a sort of planning for the worst. Then there is a sort of hope for the best, which is down to how you manage your business keeping an eye on what demand and supply really is and whether or not we are reaching that point where actually there is going to be a lot of competition, and we should look to move on. And that is the power of Infratil. If over time you don't like the sector you are in, you can move on. And this is definitely not one of those ones in moving on territory at all, but that is the flexibility we have at any given time."

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

I get the impression that Spark CFO Stefan Knight is definitely in the 'hope for the best' camp. Don't get me wrong, there is nothing wrong with Spark being optimistic about their datacentre prospects. But I find Stefan's argument partly unravels when he talks about known datacentre customers generating an IRR of 10%, whereas with new customers he expects an IRR of 15%. So as new customers sign up they become 'known' and so their expected IRR to make the sign up viable drops from 15% to 10%. Huh? Maybe I am just 'data-centre dumb' and don't understand the business model. But it looks to me as though Stefan is banking on more data centre capacity demand and higher margins, just as the competition from the international mega datacentre providers is ramping up in parallel. I find Jason Boyes more measured outlook of data centre margins contracting to a more stable norm over time more believable. Am I being overly negative with my thoughts on the future profitability of Spark datacentres?

SNOOPY

[bull....]

I agree that, around Auckland at least, industrial land is a scarce commodity. So it does make sense to value such land on a 'best use' basis. Data Centres are near the top of that 'best use' list, right now, as far as I can figure out. And you can measure that by looking at the cash-flows being generated from them.

But what about that vacant paddock of land that you have purchased out the back of your data centre? How do you value that? You would have to make guesses as to:

a/ When the ramp in demand was sufficient to require a data centre to be built on that land. (PRFY2014 'slide 11' suggests that Spark are looking at building 118MW of new data centre capacity within the next 5-7 years. C.f. current operating capacity of 22MW).
b/ What the profit margins would be like when the utility in those data centres was sold off, and at what rate that customer take up would occur.

This is where I take issue with CFO Stefan Knight saying that he thinks the IRR on his Spark data centre projects will be 10% (that part of his modelling IMV is believable) but for the uncommitted riskier part of the build out, the IRR would be 15% (IMV not believable).

I think I get where Stefan is coming from (see FY2024 Presentation, slide 11). He is saying that in order for the future 'pink and grey' part of the potential data centre site capacity to be built, he wouldn't do it unless he could get customers signed up to contracts generating an IRR of 15%,

But I come back to the Madison Reidy interview with Jason Boyes on the subject of data centres, and the comment below by Jason

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

https://www.sharetrader.co.nz/showth...=1#post1065389
9:30 Jason Boyes CEO Infratil: "I think it is prudent to assume that (the data market) does become more competitive in the future. It is how we think about any investment. You should not assume your margins will stay the same forever. You should assume they should contract to a pretty stable norm over time. That is a sort of planning for the worst. Then there is a sort of hope for the best, which is down to how you manage your business keeping an eye on what demand and supply really is and whether or not we are reaching that point where actually there is going to be a lot of competition, and we should look to move on. And that is the power of Infratil. If over time you don't like the sector you are in, you can move on. And this is definitely not one of those ones in moving on territory at all, but that is the flexibility we have at any given time."

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

I get the impression that Spark CFO Stefan Knight is definitely in the 'hope for the best' camp. Don't get me wrong, there is nothing wrong with Spark being optimistic about their datacentre prospects. But I find Stefan's argument partly unravels when he talks about known datacentre customers generating an IRR of 10%, whereas with new customers he expects an IRR of 15%. So as new customers sign up they become 'known' and so their expected IRR to make the sign up viable drops from 15% to 10%. Huh? Maybe I am just 'data-centre dumb' and don't understand the business model. But it looks to me as though Stefan is banking on more data centre capacity demand and higher margins, just as the competition from the international mega datacentre providers is ramping up in parallel. I find Jason Boyes more measured outlook of data centre margins contracting to a more stable norm over time more believable. Am I being overly negative with my thoughts on the future profitability of Spark datacentres?

SNOOPY

if you dig inmto there result it looked like the legacy datacentres are using to much power effecting there margins he must be thinking iir of 15% is acheivable because of better power ie genesis and also the add-on services to new customers in the new data centres. they get enhanced margins from all this as a better unit cost per customer etc . anyway i see it as acheivable.

also there aiming for silver and gold standard in the new centres mean there be more efficient ie higher returns as well.

[kiwikeith]

if you dig inmto there result it looked like the legacy datacentres are using to much power effecting there margins he must be thinking iir of 15% is acheivable because of better power ie genesis and also the add-on services to new customers in the new data centres. they get enhanced margins from all this as a better unit cost per customer etc . anyway i see it as acheivable.

Bull I cannot believe that someone with a reasonable level of education as you have (you are comfortable using cagr, present value and IRR etc) has so many misspelt words in the first line of your message. there should be their, to should be too, effecting should be affecting and there should be their (and that is not counting the typo inmto should be into).

[bull....]

Bull I cannot believe that someone with a reasonable level of education as you have (you are comfortable using cagr, present value and IRR etc) has so many misspelt words in the first line of your message. there should be their, to should be too, effecting should be affecting and there should be their (and that is not counting the typo inmto should be into).

yep my english has always been terrible lol been more of a maths person

[percy]

yep my english has always been terrible lol been more of a maths person

Investing successfully is really based on MATHS.
Your maths is 100%.
Your english keeps us awake...lol