Tower network sale delivers for Spark

AUCKLAND: Analysts were looking for a capital return following Spark’s sale of 70% of its cell tower network for $900 million.

And that was what the telco delivered, announcing a $350 million return to shareholders via an onmarket buyback. A further $350 million will be invested in growth areas like the Internet of Things, mobile and the telco’s new health unit.

The firm also said while its fullyear dividend would be 25c per share (for the sixth year in a row, in line with guidance), the profit payout would increase to 27cps, 1cps ahead of what analysts were picking.

The telco also revealed a new longterm dividend policy that will see 80% to 100% of free cashflow paid out in dividends.

Ebitdai was $1.15 billion, at the top end of Spark’s forecast, as per its midyear update.

Net profit increased 7.6% to $410 million, with Spark crediting gains in mobile plus a large health contract.

Total revenue increased 3.5% to $3.72 billion.

While mobile revenue was up 5.5% to $899 million, broadband revenue fell 4.6% to $639 million, although Spark said the drop was partially offset by the fact that highermargin fixedwireless connections (which cut wholesaler Chorus out of the loop) increased by 16,000 and now formed 28% of its total broadband base of 704,000 — and were on track to account for 30% of its broadband customers in FY2023.

Cloud, security and service management revenue was near flat, up 0.7% to $446 million, although Spark Health appeared to be a bright point, with its (undisclosed) revenue increasing 46%.

Spark guided to $1.19 billion to $1.23 billion ebitdai for FY2023 and said capital expenditure would be flat at $410 million.

Fullyear FY2022 free cashflow dropped by a third to $296 million, but the telco guided to free cashflow between $460 million and $500 million for FY2023.

Dividends from the Southern Cross Cable remain suspended (a measure introduced as Spark chipped in for the new Southern Cross Next cable due to go live next year). Spark says it expects the profit payout to resume in FY2024.

On Spark Sport, the company said its ‘‘focus remains on accelerating strategic partnership opportunities to drive improved returns’’.

The cell tower sale — which saw 70% of Spark’s passive network assets go to a Canadian pension fund, with Spark retaining a 30% stake in ‘‘TowerCo’’ — is subject to Overseas Investment Office approval and expected to wrap up in the first half of FY2023.

On a conference call, chief financial officer Stefan Knight said the $35 million share buyback would occur after the sale closed. It was possible the telco could explore other options for a capital return, subject to market conditions.

Mr Knight said roaming revenue would return to about 60% to 65% of preCovid levels in FY2023, helping to drive 5%8% revenue growth in mobile and the forecast growth in operating earnings overall.

Spark shares yesterday closed up 8c at $5.375. The stock is up more than 9% for the year. — The