Morningstar | No Spark or Drama in Fiscal 2018 Result. See Updated Analyst Note from 22 Aug 2018
Adjusted for the NZD 20 million gain from asset sales last year, the 4% lift in Spark New Zealand's normalised EBITDA to NZD 1,038 million was in line with our expectations, as was the 6% rise in underling net profit after tax to NZD 420 million. The board declared a final DPS of NZD 0.125, 75% imputed--an amount that has been well-flagged for some time.The 7% rise in mobile revenue was the key highlight, fuelled by another 70,000 new post-paid subscribers (52,000 net gain in fiscal 2017), albeit with average revenue per user, or ARPU, falling 2% reflecting competitive intensity. This was augmented by a 15% increase in cloud-related revenue, more than offsetting the impact of continuing structural decline in legacy voice and IT revenue which fell another AUD 100 million combined in fiscal 2018.
It is this decline in legacy units that is driving Spark's current Quantum program. It is a companywide transformation project that is on track to deliver annualised net labour cost savings of NZD 110 million in the current half, after delivering NZD 37 million cost reduction in fiscal 2018. Execution of this program is key to hitting management's fiscal 2019 EBITDA guidance of NZD 1,025 to 1,055 million, as is continuing inroads into new revenue streams such as cloud-related services--a growth market where Spark is the clear leader, albeit with competition intensifying.
With the guidance in line with our NZD 1,047 million estimate and no material changes to our outer-year forecasts, we maintain our NZD 3.70 (AUD 3.40) fair value estimate per share on Spark. Shares in the narrow moat-rated group are trading at 6% above our intrinsic assessment, perhaps buoyed by management's flawless execution on the Quantum program to-date. A more benign competitive telecom environment compared with Australia may also be furnishing Spark with more defensive appeal, especially given its strong balance sheet (net debt/EBITDA of 1.2) and secure yield (6.4%).
Spark New Zealand of New Zealand is the supplier of telecommunications and information, communication and technology (ICT) services in New Zealand and Australia. Co. provides telecommunications and ICT products and services, including local, national, international and telephone services; mobile services, data, broadband and internet services; information technology (IT) consulting, implementation and procurement, equipment sales; and installation services. The Co.'s portfolio of IT services include Cloud computing services, managed IT services, IT outsourcing, IT software and hardware procurement, and professional services to assist organizations with business and technology investments.
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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