Chorus — and its shareholders — set to benefit as prices rise

Chorus is one of the few beneficiaries of higher inflation.

Aaron Ibbotson, Forsyth Barr

On paper, Chorus — which will deliver its full-year result on Monday — should be entering a new golden era.

Bar a few details yet to be finalised, the heavy-spending days of the ultrafast broadband (UFB) fibre rollout, and uncertainties about the new regulatory regime, are behind it.

Free cash flow is set to increase, with up to 80 per cent paid out to shareholders as the company’s dividends fatten over the next few years.

Investors cheered Chorus’ firsthalf result, which was at the upper end of guidance and saw the first-half dividend bumped up from 10.5 cents per share a year ago to 14cps.

The full-year dividend guidance was upped from 26cps to 35cps as Chorus reiterated its full-year ebitda guidance of $665m to $685m.

The UFB operator has forecast a “minimum” dividend of 40 cents a share to 45cps for the 2023 full year, with some analysts believing that could stretch to 50cps, with 70cps on the cards for the years ahead.

Chorus — which recently hiked pricing by up to 7 per cent across its suite of wholesale plans — should also benefit from the current period of high inflation, says Forsyth Barr analyst Aaron Ibbotson.

While the formulas behind the new UFB regulatory regime are complex, Ibbotson says the bottom line is that Chorus will get more wiggle room around its Maximum Allowable Revenue under the new revenue regime. “Chorus is one of the few beneficiaries of higher inflation,” Ibbotson says.

He notes that when it was setting the rules for the first regulatory period (2022 to 2024), the Commerce Commission estimated inflation would be around 3 per cent, dropping to 2 per cent, in line with Reserve Bank projections at the time.

For each percentage point above that projection, Chorus can add around $55m to its Regulated Asset Base, which in turn feeds into and helps lifts its Maximum Allowable Revenue.

Not all elements of the high inflation environment benefit Chorus, but the net effect is positive, he says.

And to top it off, the Commerce Commission has put a leash on how Spark, Vodafone and 2degrees can market their fixed-wireless plans, which compete with fibre in some areas of the market.

The mobile players must now follow tighter rules around promoting all technology options, and reference the ComCom’s broadband testing, which only includes 4G fixedwireless, not the faster, lower latency 5G fixed-wireless.

A spokeswoman for the regulator said it did not yet have enough test volunteers for 5G, but anticipated adding 5G fixed-wireless in early 2023.