Morningstar | Fixed Wireless Becoming More Painless for Chorus. See Updated Analyst Note from 02 Jan 2019
Connection losses for Chorus stem from three sources: (1) local fibre companies such as Enable and Northpower, (2) the Black Hole due to decline in demand for fixed-line voice services, and (3) fixed-wireless mobile operators. The pressure from the first two sources is not letting up, making up most of the 19,000 line losses suffered in the 2018 September quarter.However, competition from fixed-wireless is beginning to ease. This was evident in the slowdown in such customers for Spark New Zealand, with only 12,000 connected in the 2018 June-half (versus target of 21,000). The trend has continued since, as Spark focuses more on retention of its fixed wireless customers while fibre rollout spreads and data consumption explodes (monthly data usage per fibre household well over 300 gigabytes, up from 200 gigabytes two years ago).
Against this backdrop, the upcoming Rugby World Cup in September 2019 could be another catalyst to accelerate fibre take-up. The broadcast rights holder, Spark, will leverage the event to boost mobile customers who will be able to stream all games on their handsets. However, it is more likely to increase awareness of, and demand for, fibre, especially considering the challenges faced by Optus' mobile customers with the football World Cup last year in Australia.
All this acts as a tailwind for Chorus, a cornerstone partner in the country's Ultra Fast Broadband program, responsible for 75% of the fibre rollout. However, the positive sentiment is more than reflected in the no moat-rated group's shares, trading at an enterprise value/EBITDA of 7.4 and an 18% premium to our NZD 4.00 fair value estimate (AUD 3.80 at current exchange rate). We are cognisant of the upside of Chorus being treated as a utility stock (sector EV/EBITDA multiple of 9 to 10) instead of as a telecom stock (sector multiple of 5 to 6). Still, with regulatory framework still fluid, actions based on exploiting such multiple arbitrage are premature.
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.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.