Morningstar | Tough regulation will keep Spark's returns under pressure, but distributions are sustainable.
Spark Infrastructure is a solid regulated utility, paying healthy dividends but with modest growth. It owns 49% of three electricity distribution networks: CitiPower and Powercor in Victoria, and SA Power Networks in South Australia. It also owns a 15% stake in TransGrid in New South Wales. All have secure, predictable, and regulated revenue streams, with pricing typically reset every five years. Unregulated and semiregulated revenue comprises roughly 10% of group revenue, typically providing higher, though more volatile, returns. Management is internal but has limited control over underlying assets, given the minority shareholdings. Despite tough regulatory conditions, free cash flows should improve over the longer term, aided by network expansion and ongoing cost-saving initiatives.Spark Infrastructure is engaged in investing in regulated electricity distribution and transmission businesses in Australia. Co. reportable segments are: Victoria Power Networks, which represent the 49.0% interest in two electricity distribution businesses in Victoria; SA Power Networks, which represent the 49.0% interest in the electricity distribution business in South Australia; TransGrid, which represent the 15.01% interest in the electricity transmission business in New South Wales; and Other which represents the economic interest in DUET Group, an Australian Securities Exchange listed entity head quartered in New South Wales.
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