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Speaker 1: With me.

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Speaker 2: Now is Jeremy Hutton, Milford Asset Management. Hey, Jeremy, Evening, Heather.

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Speaker 2: We'll talk a little bit about Spark. I haven't a

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Speaker 2: bad run that's been going on for a little while

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Speaker 2: and it's just continued today, hasn't it.

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Speaker 1: Yeah, another earnings and also the dividend downgrade today and

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Speaker 1: this was only two months after its previous financial result,

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Speaker 1: and it's already downgraded as guidance for the FY twenty

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Speaker 1: five year, so it's preferred earnings metric ebitde by four

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Speaker 1: percent at the midpoint and disappointingly, just follows, as you said,

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Speaker 1: a series of downgrades already this calendar year. And these

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Speaker 1: earnings downgrades have been the main contributor to the stock

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Speaker 1: being one of the worst performers on the Interdex this year.

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Speaker 1: So very unusual for a normally defensive blue tap telecoms

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Speaker 1: company like Spark. Yeah.

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Speaker 2: I mean, if you look at what's happened that the

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Speaker 2: share price is down well over forty percent, you know,

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Speaker 2: so far this year. So this is basically just a

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Speaker 2: run of the same kind of news, isn't it.

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Speaker 1: Yeah? A little bit parts of the updates were similar,

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Speaker 1: but there was also some New News as well did

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Speaker 1: highlight the continued slower mobile division growth, and this is

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Speaker 1: mainly competition from One New Zealand and two degrees impacting

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Speaker 1: and effectively. Corporates and government entities are still looking to

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Speaker 1: rationalize their spend, especially in mobile and IT services, looking

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Speaker 1: for some more value options and it's been in the

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Speaker 1: New News. Spark cut its ever important dividends as well

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Speaker 1: by ten percent. This was down to twenty five cents

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Speaker 1: for next year expected. So the dividend has traditionally been

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Speaker 1: the most important value driver for Spark, so meaningful cut there.

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Speaker 2: So what's the concern that's led them to the dividend cut?

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Speaker 1: Yeah, the biggest issue that the market has had is

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Speaker 1: over the sustainability of the dividend, and this is due

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Speaker 1: to the competing demands on its cash flows. So Spark

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Speaker 1: has been investing a lot in building new data centers

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Speaker 1: which are pretty expensive. The operating performance has been struggling

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Speaker 1: as mentioned before, and it wants to maintain its investment

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Speaker 1: grade credit rating, so words have low debt levels, so

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Speaker 1: it's balancing a lot of demands. It did cut back

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Speaker 1: its capital expensure guidance, but looking at it really simply

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Speaker 1: from here at three cash flow guide as a midpoint

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Speaker 1: of four hundred and twenty million, but the dividend at

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Speaker 1: twenty five cents, even at the reduced level, is still

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Speaker 1: costing four hundred and sixty million, so in theory it's

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Speaker 1: still borraling to pay this dividend.

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Speaker 2: Very interesting. Again, the interesting things that the share price

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Speaker 2: didn't move very much today was that the market potentially

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Speaker 2: buying the last downgrade.

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Speaker 1: Yeah, certainly could have been especially given how much the

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Speaker 1: share price has fallen. Parts of this was expected, but

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Speaker 1: it's probably more in relation to some other news. It's

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Speaker 1: looking to sell some of its non core assets, like

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Speaker 1: the remainder of its power CODs heat, and it's trying

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Speaker 1: to find a capital partner to help fund its data centers,

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Speaker 1: and both of these will relieve some of the pressure

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Speaker 1: on the balance sheet and cash flow. There is a

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Speaker 1: very large value case starting to emerge. Even on the

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Speaker 1: lower dividend. Cash yield is over eight percent per year,

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Speaker 1: and this lines up favorably versus other global telecoms peers,

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Speaker 1: other INJE ex dividend stocks, and also favorably against term deposits,

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Speaker 1: especially in a falling and gestrade environment. So some value emerging.

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Speaker 2: Here interesting, Jeremy, thanks very much, really appreciate it. Jeremy Hutton.

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Speaker 2: More for Acid Management. For more from Heather Duplessy Allen Drive,

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