SPK- Spark NZ (TELCO)

[Snoopy]

It may have been Spark mentioning in their post results for FY2024 analyst news conference, that they were looking at bringing in partners to help build out their data centre portfolio in about 18 months time that fuelled this suggestion that Spark did not have the capital to roll out their data centre plan. Looked at in that light, this might have been the reason for Solly being 'wary' of capital costs. However, rival datacentre provider CDC started out on their data centre path by building their own data centres, but then selling the data centre buildings (while keeping the business) to fund building the next data centre. So there is a precedent for Spark to do the same, if required.

Investors seem very comfortable with Spark no longer owning their cellphone towers, while continuing to run the cellphone business. I can't see Spark shareholders being too worried if the data centres went down the same path.

Just putting a few numbers on the upcoming datacentre spend by Spark.

1/ In PRFY2023 slide 19, Spark suggested that they would be spending $250m-$300m on data centres 'over the next three years' (which I take to mean FY2024, FY2025 and FY2026). The mid point of that estimated spend is $275m.
2/ In AR2024 p17, Spark declared that they had spent on Capex, $37m on 'cloud', $41m on 'datacentres' and $11m on 'property'. They are non-specific about what this property spend was. But during the year they purchased land for a proposed North Shore 'data centre hub' to be located within the 'Aventuur' surf park. I am guessing the $11m property spend is that. So I get a total spent on datacentres over FY2024 of: $37m+$41m+$11m= $89m.
$89m is within the projected band spend on FY2024 data centres of $80m-$100m, referred to in PRFY2023 slide 19.
3/ In slide 12 of PRFY2024, there is a reference to a budgeted spend on datacentres over FY2025 of $70m-$90m. The mid point of that estimated datacentre capex spend is $80m.
4/ Taking what we know about the actual spend in FY2024 and the estimated spend in FY2025, we can work out an estimated 'mid point' capital spend for FY2026:

$275m-$89m -$80m = $106m.

That is quite a projected jump from the projected datacentre capex spend over FY2025, up by $26m or more than 25%! This could be what Solly was concerned about. So maybe Solly not so silly after all? However there is still a lot of cashflow to pass under the bridge before we get to this projected point. We have the 'Potential Hybrid Capital Notes Issue', which, given the capex requirements outlined, must surely now be a certainty that is just awaiting regulatory approval, for a start. Perhaps some of the weakness in the SPK share price of late is institutions selling in anticipation of being offered some of these 'Hybrid Capital Notes'? I wonder if these hybrid capital notes would convert to shares in some circumstances? I am not really sure what 'hybrid' means in this context. But could these 'hybrid capital notes' eventually lead to a potential dilutive share issue in some circumstances?

SNOOPY

[Panda-NZ-]

Buy SPK at close, sell at open.. rinse and repeat.

The nicola willis day trader special.

[kiwikeith]

Buy SPK at close, sell at open.. rinse and repeat.

The nicola willis day trader special.

Yes I have noticed that for the last 3 trading days. Always a big volume goes through at 5pm and the share price goes down to around $3.60.

[Snoopy]

Data-centres

2:03:15
Q/ 9-10% data-centre return? How is that defined? How do you see it evolving?
A/ Look at incremental returns new data centre investment generates.on a post tax basis. Look at the invested capital that goes into support that. Then divide one by the other. Return comes on stream as the build scales (Takanini due for completion June 2023 is 85% contracted, 100% committed). Data deals are ten year plus time frame contracts with certainty of returns priced in.

Spark has given us a simple rule on how they see their ROI for data centres. So let's apply that and see how much they have made, and hope to make, from their data centre roll out.

We have been told how much capital has been invested in data centres, and can work out how much Spark are planing to invest in future years, given their forecast budget over the next 5 years of $1 billion. We also must bear in mind that data centres are very much an ongoing construction project. So I am going to take the earning capacity of each year as equal to the mid point in the valuation of assets at the end of the current financial year and the previous financial year. I will take ROI to be 10%.

Year	Capex	Cumulative Capex	Average Cumulative Capex	Annual Earnings
FY2021	$1m	$1m	$0.5m	$0.0m
FY2022	$31m	$32m	$16.5m	$1.7m
FY2023	$114m	$145m	$88.5m	$8.9m
FY2024	$89m	$234m	$189.5m	$19.0m
FY2025	$80m	$314m	$274m	$27.4m
FY2026	$106m	$420m	$367m	$36.7m
FY2027	$163m	$583m	$501m	$50.1m
FY2028	$163m	$746m	$665m	$66.5m
FY2029	$163m	$909m	$828m	$82.8m
FY2030	$163m	$1,072m	$991m	$99.1m
FY2031	$163m	$1,235m	$1,154m	$115.4m

Notes

i/ Capex spend for FY2025 is the forecast from PRFY2024 slide 12, $80m being the average of the $70m-$90m band quoted.
ii/ Capex spend for FY2026 calculated in post 2451
iii/ Capex spend for the five years inclusive and between FY2027 to FY2031 is based on the billion dollar spend declared over up to 7 years declared in PRFY2014 slide 10, I have removed from the 7 year period the capex from FY2015 and FY2026 that we have already modelled, and divided the remainder of the capex investment over the remaining 5 years: ($1,000m - $80m -$106m) / 5 = $163m

SNOOPY

[kiwikeith]

Just putting a few numbers on the upcoming datacentre spend by Spark.

1/ In PRFY2023 slide 19, Spark suggested that they would be spending $250m-$300m on data centres 'over the next three years' (which I take to mean FY2024, FY2025 and FY2026). The mid point of that estimated spend is $275m.
2/ In AR2024 p17, Spark declared that they had spent on Capex, $37m on 'cloud', $41m on 'datacentres' and $11m on 'property'. They are non-specific about what this property spend was. But during the year they purchased land for a proposed North Shore 'data centre hub' to be located within the 'Aventuur' surf park. I am guessing the $11m property spend is that. So I get a total spent on datacentres over FY2024 of: $37m+$41m+$11m= $89m.
$89m is within the projected band spend on FY2024 data centres of $80m-$100m, referred to in PRFY2023 slide 19.
3/ In slide 12 of PRFY2024, there is a reference to a budgeted spend on datacentres over FY2025 of $70m-$90m. The mid point of that estimated datacentre capex spend is $80m.
4/ Taking what we know about the actual spend in FY2024 and the estimated spend in FY2025, we can work out an estimated 'mid point' capital spend for FY2026:

$275m-$89m -$80m = $126m.

That is quite a projected jump from the projected datacentre capex spend over FY2025, up by $46m or more than 50%! This could be what Solly was concerned about. So maybe Solly not so silly after all? However there is still a lot of cashflow to pass under the bridge before we get to this projected point. We have the 'Potential Hybrid Capital Notes Issue', which, given the capex requirements outlined, must surely now be a certainty that is just awaiting regulatory approval, for a start. Perhaps some of the weakness in the SPK share price of late is institutions selling in anticipation of being offered some of these 'Hybrid Capital Notes'? I wonder if these hybrid capital notes would convert to shares in some circumstances? I am not really sure what 'hybrid' means in this context. But could these 'hybrid capital notes' eventually lead to a potential dilutive share issue in some circumstances?

SNOOPY

On the surface, the increase in capex is not a concern if the returns are as good as Spark suggests. I provide a link to an article from 2023 which outlines the level of data centre build planned for Auckland. It is not a monopoly business for SPK. Wow lets hope the national grid can supply the electricity. And hope SPK does not end up with a white elephant - which they shouldn't.

Auckland’s giant new data centres are rising - the staggering power they’ll chug - NZ Herald