New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Chorus No material changes in latest CC release</h2>
The Commerce Commission (CC) has released its final decision on the “loss asset input methodologies” which feed into Chorus’s (CNU) new ultrafast fibre broadband (UFB) regulatory regime.
Our initial view (of reports totalling c.300 pages) is that, from a CNU perspective,&nbsp;there is no material change in the CC’s views from the draft decision published in August.
In CNU’s response it states the CC decision is:
<ul>
<li>A “very slight improvement” on the draft decision. We understand this is referring to a lift in the debt premium term from five to seven years. This change is extremely minor, and lost within the wide margin of error when estimating the “maximum allowable revenue” (MAR) able to be earned by CNU’s UFB network.&nbsp;</li>
<li>An “extremely poor signal to investors in NZ’s infrastructure and future public-private partnerships”. CNU’s statement follows its unsuccessful contention that it should be allowed a higher cost of capital during the higher-risk build phase. We had not assumed this in our forecasts, and today’s CC decision is consistent with our current modelling assumptions.</li>
</ul>
The regulatory process for CNU now shifts from establishing the input methodologies to using them to determine the MAR it is able to earn from the UFB. CNU remains a long-dated business with substantial operating and financial leverage, and therefore, any assessment of the company’s fundamental value can vary materially with this decision. This will not be finalised until 3Q/4Q CY21. We remain comfortable with our view that CNU will deliver strong free cash flow (we forecast a 8-9% FCF yield) once the&nbsp;UFB network&nbsp;is complete, enabling a substantial lift in dividend over the medium-term.
Matt Henry &nbsp;CFA Head of Wealth Management Research
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.1&amp;permmsgid=msg-f:1682282382204460736&amp;th=1758aae9db31dec0&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ-HYS29MvHNLQDoYmTblLWkkxd6K9W_d1ufy5dXj5fB8lBN-d96y18lX9EF_rCGeaOZ_YYc3DmrjLkwQmjfGxBkfP_oZWUKeenCizfS975haw0IYtY743TXznU&amp;disp=emb" class="editor-image img-responsive"></figure>
M: +64 21 329 291 |P: +64 9 368 0115 | TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Chorus No material changes in latest CC release
The Commerce Commission (CC) has released its final decision on the “loss asset input methodologies” which feed into Chorus’s (CNU) new ultrafast fibre broadband (UFB) regulatory regime.
Our initial view (of reports totalling c.300 pages) is that, from a CNU perspective,&nbsp;there is no material change in the CC’s views from the draft decision published in August.
In CNU’s response it states the CC decision is:

A “very slight improvement” on the draft decision. We understand this is referring to a lift in the debt premium term from five to seven years. This change is extremely minor, and lost within the wide margin of error when estimating the “maximum allowable revenue” (MAR) able to be earned by CNU’s UFB network.&nbsp;
An “extremely poor signal to investors in NZ’s infrastructure and future public-private partnerships”. CNU’s statement follows its unsuccessful contention that it should be allowed a higher cost of capital during the higher-risk build phase. We had not assumed this in our forecasts, and today’s CC decision is consistent with our current modelling assumptions.

The regulatory process for CNU now shifts from establishing the input methodologies to using them to determine the MAR it is able to earn from the UFB. CNU remains a long-dated business with substantial operating and financial leverage, and therefore, any assessment of the company’s fundamental value can vary materially with this decision. This will not be finalised until 3Q/4Q CY21. We remain comfortable with our view that CNU will deliver strong free cash flow (we forecast a 8-9% FCF yield) once the&nbsp;UFB network&nbsp;is complete, enabling a substantial lift in dividend over the medium-term.
Matt Henry &nbsp;CFA Head of Wealth Management Research

M: +64 21 329 291 |P: +64 9 368 0115 | TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Chorus: No Material Changes in Latest CC Release

Chorus Ltd

Chorus: No Material Changes in Latest CC Release