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>Spark NZ<br>Bright Spark in a Dull Market</h2>
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<p><strong>OUTPERFORM</strong></p>
<p>Spark NZ (SPK) has announced the sale of a 70% interest in its&nbsp;TowerCo&nbsp;business to Ontario Teachers' Pension Plan.&nbsp;The transaction values&nbsp;SPK's&nbsp;TowerCo&nbsp;business at an enterprise value of ~NZ$1,175m, representing a FY23 pro-forma EBITDA multiple of 33.8x. We are supportive of the&nbsp;TowerCo&nbsp;business sale and remain attracted to&nbsp;SPK's&nbsp;(1)&nbsp;defensive attributes against an uncertain economic backdrop, (2) sector leading returns, (3) favourable gearing position&nbsp;post the&nbsp;TowerCo&nbsp;sale which opens up capital release opportunities, and (4) its solid underlying free cash flow profile, supporting modest dividend growth over the next three years. We reinstate coverage with an OUTPERFORM rating and NZ$5.70 target price.</p>
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<h3>What's changed?</h3>
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<li><strong>Earnings</strong>:&nbsp;​​​​​​​FY22/FY23/<wbr>FY24 EPS reinstated at NZ22cps/NZ23cps/NZ25cps. DPS at NZ25cps/NZ26cps/NZ27cps.</li>
<li><strong>Target price</strong>:&nbsp;Reinstated at NZ$5.70.</li>
<li><strong>Rating</strong>:&nbsp;​​​​​​​Reinstate&nbsp;<wbr>coverage with an OUTPERFORM rating.</li>
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<h3>Minimal details but valuation appears reasonable at face value</h3>
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<p>Ontario Teachers' Pension Plan Board will acquire a 70% interest with SPK being the anchor tenant and retaining a 30% stake in the&nbsp;TowerCo&nbsp;business.&nbsp;The 33.8x pro-forma FY23 EBITDA transaction multiple appears reasonable at face value against the backdrop of rising bond yields and compares to&nbsp;TPG's&nbsp;100% sale in May 2022 for 32x,&nbsp;Telstra's&nbsp;49% sale in June 2021 for 28x, and&nbsp;Singtel's&nbsp;70% sale for 38x in October 2021. Under the terms of the deal, SPK has entered into a 15-year agreement with&nbsp;TowerCo&nbsp;(plus rights of renewal) to secure access to existing and new towers, with a build commitment of 670 sites over the next 10 years.&nbsp;</p>
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<h3>The&nbsp;TowerCo&nbsp;sale will create ample balance sheet headroom</h3>
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<p>SPK expects net cash proceeds of ~NZ$900m at completion which is expected to occur in the first half of FY23, subject to Overseas Investment Office (OIO) approval. If successful, we estimate FY23&nbsp;pro-forma net debt (excluding lease liabilities) to FY23&nbsp;EBITDA of ~0.4x (versus ~1.2x at 1H22 and well below&nbsp;SPK's&nbsp;policy of &lt;1.4x). Including the value of the&nbsp;TowerCo&nbsp;lease liabilities, we estimate&nbsp;~0.7–0.8x. No explicit detail was provided on&nbsp;use of cash proceeds but SPK stated it intends to update its capital management policy at its full year result on 24 August, with a focus on "enabling direct shareholder returns and investment in future growth opportunities".&nbsp;Our&nbsp;forecasts assume a +1NZcps dividend increase from FY23 onwards in light of&nbsp;SPK's&nbsp;improved gearing position and solid underlying free cash flow profile. We forecast a NZ27cps dividend in FY24 (~+8% growth versus FY22E).</p>
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Spark NZ Bright Spark in a Dull Market

OUTPERFORM
Spark NZ (SPK) has announced the sale of a 70% interest in its&nbsp;TowerCo&nbsp;business to Ontario Teachers' Pension Plan.&nbsp;The transaction values&nbsp;SPK's&nbsp;TowerCo&nbsp;business at an enterprise value of ~NZ$1,175m, representing a FY23 pro-forma EBITDA multiple of 33.8x. We are supportive of the&nbsp;TowerCo&nbsp;business sale and remain attracted to&nbsp;SPK's&nbsp;(1)&nbsp;defensive attributes against an uncertain economic backdrop, (2) sector leading returns, (3) favourable gearing position&nbsp;post the&nbsp;TowerCo&nbsp;sale which opens up capital release opportunities, and (4) its solid underlying free cash flow profile, supporting modest dividend growth over the next three years. We reinstate coverage with an OUTPERFORM rating and NZ$5.70 target price.


What's changed?



Earnings:&nbsp;​​​​​​​FY22/FY23/FY24 EPS reinstated at NZ22cps/NZ23cps/NZ25cps. DPS at NZ25cps/NZ26cps/NZ27cps.
Target price:&nbsp;Reinstated at NZ$5.70.
Rating:&nbsp;​​​​​​​Reinstate&nbsp;coverage with an OUTPERFORM rating.



Minimal details but valuation appears reasonable at face value


Ontario Teachers' Pension Plan Board will acquire a 70% interest with SPK being the anchor tenant and retaining a 30% stake in the&nbsp;TowerCo&nbsp;business.&nbsp;The 33.8x pro-forma FY23 EBITDA transaction multiple appears reasonable at face value against the backdrop of rising bond yields and compares to&nbsp;TPG's&nbsp;100% sale in May 2022 for 32x,&nbsp;Telstra's&nbsp;49% sale in June 2021 for 28x, and&nbsp;Singtel's&nbsp;70% sale for 38x in October 2021. Under the terms of the deal, SPK has entered into a 15-year agreement with&nbsp;TowerCo&nbsp;(plus rights of renewal) to secure access to existing and new towers, with a build commitment of 670 sites over the next 10 years.&nbsp;


The&nbsp;TowerCo&nbsp;sale will create ample balance sheet headroom


SPK expects net cash proceeds of ~NZ$900m at completion which is expected to occur in the first half of FY23, subject to Overseas Investment Office (OIO) approval. If successful, we estimate FY23&nbsp;pro-forma net debt (excluding lease liabilities) to FY23&nbsp;EBITDA of ~0.4x (versus ~1.2x at 1H22 and well below&nbsp;SPK's&nbsp;policy of &lt;1.4x). Including the value of the&nbsp;TowerCo&nbsp;lease liabilities, we estimate&nbsp;~0.7–0.8x. No explicit detail was provided on&nbsp;use of cash proceeds but SPK stated it intends to update its capital management policy at its full year result on 24 August, with a focus on "enabling direct shareholder returns and investment in future growth opportunities".&nbsp;Our&nbsp;forecasts assume a +1NZcps dividend increase from FY23 onwards in light of&nbsp;SPK's&nbsp;improved gearing position and solid underlying free cash flow profile. We forecast a NZ27cps dividend in FY24 (~+8% growth versus FY22E).


Spark New Zealand

Spark NZ: Bright Spark in a Dull Market