Morningstar | Chorus Emits Positive Signals
We lift our fair value estimate on Chorus by 3% to NZD 4.00 (AUD 3.65) per share. The upgrade reflects our more positive assumptions on Chorus' fixed-line connections, rather than the reported fiscal 2018 EBITDA of NZD 653 million which was down 8% on a like-for-like basis, but 2% higher than our forecast. It was a beat was mostly cost-driven, especially on corporate overheads which fell 15% to NZD 23 million.While the 76,000 line losses in fiscal 2018 was in line with our expectations, consumer migration to fixed-wireless broadband is showing signs of slowing, as evidenced by Spark New Zealand's 116,000 such subscribers at the end of fiscal 2018 versus its target of 125,000. We also expect the recent completion of competitor Enable's rollout in Christchurch to moderate connection losses in local fibre company, or LFC, areas where 15,000 of Chorus' connections disappeared during the year.
All this is at a time when the no-moat-rated group's focus on costs is elevating to another level, with labour cost (excluding one-off restructuring) down 8% in fiscal 2018 and staff numbers now 12% lower than peak August 2017 levels. Further, there are opportunities for savings on network operating expenses, as migration continues from temperamental, expensive-to-maintain copper network to the spanking new fibre network.
This is the basis for the average 2% lift to our forward EBITDA forecasts, with our fiscal 2019 EBITDA projection of NZD 638 million within management's NZD 625 to 645 million guidance. While our fiscal 2020 EBITDA forecast of NZD 636 million does not quite match Chorus' objective to return to growth, management's signal is clearly positive for investor sentiment, helping to hold the stock price above our fair value estimate. EBITDA growth in fiscal 2020 could well depend on how low the fiscal 2019 base turns out to be, given management's intention to spend an incremental NZD 10 to 15 million on regulatory, branding and other transformation-related areas.
Chorus Limited (Chorus) is a telecommunications infrastructure company. The Company maintains and builds a network made up of local telephone exchanges, cabinets, and copper and fiber cables. The Company's product portfolio encompasses a range of wholesale broadband, data and voice services across a mix of regulated, contracted, and commercial products. Its products include fiber broadband, fiber premium, copper-based voice, data services over copper and copper-based broadband. Its fiber and copper connections provide access to the Chorus fixed lines network to enable connections to the Internet. Its infrastructure includes the physical storage and site-sharing rental services for the co-location of the third party or shared assets. The Company's field services include services in the field to protect, strengthen, and increase the available network.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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