Takeover target lifts interim profit 18pc

TeamTalk says result confirms Spark offer undervalues firm

Network provider TeamTalk, which is under a $22.7 million hostile takeover offer from Spark NZ, lifted first-half profit 18 per cent and will consider resuming dividends next year.

Net profit rose to $1.3m in the six months ended December 31, from $1.1m a year earlier, the Wellingtonbased company said.

Revenue dipped 0.5 per cent to $28.5m, while operating costs dropped 2.4 per cent to $17.1m and finance costs halved to $488,000.

The company forecast annual profit of between $2m and $2.4m, and earnings before interest and tax (ebit) of between $4.7m and $5.2m. In 2016, it posted a $1.3m loss. In 2018, it’s targeting net profit of between $4.1m and $5.6m, ebit between $8m and $9.5m, and will consider resuming dividends that year.

Chairman Roger Sowry said the board and management had made strong progress in turning the company around, with a new strategic business plan after the company struggled to integrate the rural ISP Farmside business, acquired in late 2012 for $42m, which left it with higher debt and flat earnings.

Chief executive Andrew Miller said the company expected to cut second-half costs by 22 per cent after restructuring Farmside late last year, and operating costs were expected to continue to reduce in 2018.

The company’s ISP segment brought in $11.3m in revenue in the first half, a 7.9 per cent drop on the same period a year earlier, with its ebit loss widening to $1.5m from $618,000. Mobile radio revenue rose 3.9 per cent to $10.6m, with ebit up 14 per cent to $926,000, while in broadband networks, revenue rose 7.1 per cent to $7.4m and ebit gained 15 per cent to $2.9m.

“This result, with the turnaround plan starting to deliver results with profit after tax up 18 per cent, confirms the board’s view that Spark’s opportunistic, hostile and highly conditional proposal at $0.80c per share undervalues the company and does not represent fair value to our shareholders,” Sowry said.

“It is evident that Spark is attempting to capture the upside benefits of the new TeamTalk business plan for Spark’s shareholders, ahead of it being fully implemented and reflected into TeamTalk’s share price.”

Spark made two approaches to the board at 60c per share and 80c per share before announcing its planned takeover in February, Sowry said, with both offers unanimously rejected by the directors.

The board reaffirmed its recommendation for shareholders not to sell. Spark has said it wants to integrate TeamTalk’s services into the larger group, cut costs by stripping out any duplication and see what parts of the Wellington-based network it can grow and whether any units should be divested.

The major telco will need Overseas Investment Office and Commerce Commission approval to proceed, and may waive a condition to cross the 90 per cent threshold needed to mop-up hold-out shareholders if it secures control of TeamTalk.

Spark has previously signalled a desire to reduce its reliance on Chorus’s regulated copper lines and last year talked up the opportunities wireless broadband offers to grow the budget end of the market.