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

Spark NZ 1H22 Preview&nbsp;— Steady Progress

OUTPERFORM
Spark (SPK) reports its 1H22 result on Wednesday, 23 February. SPK has guided for FY22 EBITDAI of NZ$1,130m to NZ$1,160m. We are currently at the midpoint of guidance (NZ$1,142m), our key areas of interest are (1) a progress update on its strategic review of "class 3" assets (passive mobile tower assets and fibre), (2) growth in fixed wireless (FW) and potential implications from Chorus (CNU's) NZ$60/month budget fibre plan, and (3) comments in relation to mobile roaming revenue expectations ahead of borders reopening.&nbsp;


Strategic review of passive assets&nbsp; —&nbsp;attractive but more sellers than buyers?&nbsp;


SPK announced a strategic review of its infrastructure assets at its FY21 result in August 2021, with focus on passive aspects of its mobile towers and fibre assets. Since then&nbsp;Vodafone&nbsp;NZ has announced a near identical review of its passive mobile tower assets, and&nbsp;Orcon&nbsp;(subsidiary of&nbsp;Vocus&nbsp;Group)&nbsp;and 2degrees have&nbsp;announced a merger.&nbsp;We will look for an update on the progress of this strategic review. We believe an update on the operational and business&nbsp;merits&nbsp;of a potential divestment&nbsp;will be important.&nbsp;While the potential capital release may be substantial, we believe the market is looking for more details on&nbsp;exactly who will be the incremental users of these towers.&nbsp;In&nbsp;our view&nbsp;Orcon/Vocus&nbsp;Group was a potential&nbsp;candidate, which now seems less likely given its merger with 2degrees. In&nbsp;order for a (part) divestment to&nbsp;be a positive catalyst for SPK we believe it needs to include more than cost of capital&nbsp;and/or accounting arbitrage.&nbsp;


Fixed wireless&nbsp; —&nbsp;Chorus is turning on the heat but lowered targets should be achievable&nbsp;


CNU has stepped up its effort to combat the growth of FW with a wholesale upgrade of 100Mbps fibre plans to 300Mbps plans with an unchanged price. CNU is also launching a new entry level 50Mbps plan with a retail price cap at NZ$60/month in direct competition with FW. SPK has lowered its target for growth in FW to 15–20k connections for FY22 (from 40k expected in FY21, which wasn't achieved). We believe this target is quite conservative, but will look for an update on how, if at all, SPK believes CNU's initiatives have impacted its ability to grow FW connections. We expect FW ARPUs to be largely flat after a year of declining ARPU.&nbsp;


The return of roaming coming closer


While we appreciate that SPK will have limited to add with respect to when/how inbound and outbound tourism will return, we believe a gentle reminder of what it would entail for SPK could be a positive.&nbsp;SPK commented at its FY21 result&nbsp;that the loss of roaming cost it NZ$31m in revenue (from an already depressed FY20 level).&nbsp;We estimate that a&nbsp;full return to&nbsp;pre-pandemic roaming revenues could drive&nbsp;mobile&nbsp;service revenues growth up high single digits in FY23 vs our current estimates of just over +5% with high incremental gross margins of &gt;60%.&nbsp;


Spark NZ: 1H22 Preview — Steady Progress

Spark New Zealand

Spark NZ: 1H22 Preview — Steady Progress