Spark New Zealand Ltd. : Neutral assessment on price but strong on fundamentals

Spark New Zealand Ltd. relative valuation is now NEUTRAL. It was previously rated OVERVALUED, and has a fundamental analysis score of 66.

Our analysis is based on comparing Spark New Zealand Ltd. with the following peers – Telstra Corporation Limited, Hutchison Telecommunications (Australia) Limited, Macquarie Telecom Group Limited and SKY Network Television Limited (TLS-AU, HTA-AU, MAQ-AU and SKT-AU).

Relative Valuation

Spark New Zealand Ltd. is currently neutrally valued, as its previous close of AUD 3.15 lies within the CapitalCube estimate range of AUD 2.83 to AUD 3.15. Over the last 52 week period, Spark New Zealand Ltd. has fluctuated between AUD 3.05 and AUD 3.84.

Relative Valuation

Company Overview

  • Compared to peers, relative outperformance over the last year has faded more recently.
  • It’s current Price/Book of 3.62 is about median in its peer group.
  • SPK-AU‘s operating performance is relatively good compared to its peers. The market currently does not expect high earnings growth relative to its peers but seems to expect the company to maintain its relatively high rates of return.
  • SPK-AU‘s median net profit margins and relatively high asset efficiency give it some operating leverage.
  • Changes in annual earnings are in line with its chosen peers but lags in terms of revenue, implying the company is cost conscious and selective about spending for growth.
  • Over the last five years, SPK-AU‘s return on assets has improved from median to better than the median among its peers, suggesting the company has found relative operating advantages.
  • The company’s margins are around the peer medians and do not suggest any benefit from a pricing or an operating cost advantage versus peers.
  • While SPK-AU‘s revenues growth has been below the peer median in the last few years, the market still gives the stock a P/E ratio that is around peer median and seems to see the company as a long-term strategic bet.
  • The company’s level of capital investment seems appropriate to support the company’s growth.
  • SPK-AU has the financial and operating capacity to borrow quickly.

Investment Outlook

Spark New Zealand Ltd. has a fundamental score of 66 and has a relative valuation of NEUTRAL.

Spark New Zealand Ltd. appears on the top right hand quadrant of CapitalCube’s Value – Price Matrix. We classify this as ‘Safety’. In other words, Spark New Zealand Ltd. has a relatively high Fundamental Analysis score of 66, while being potentially overvalued and trading higher than its CapitalCube Implied Price of 2.99. There might be some safety in this stock where it’s fundamental strength perhaps justifies its relatively higher price.

Fundamentals Vs Relative Valuation

Quadrant label definitions. Hover to know more

Safety, Value Play, Value Trap, Speculative

Drivers of Valuation

The market seems to expect SPK-AU to maintain its relatively high returns.

SPK-AU‘s operating performance is higher than the median of its chosen peers (ROE of 22.69% compared to the peer median ROE of 11.28%) but the market does not seem to expect higher growth relative to peers (P/E of 15.81 compared to peer median of 15.74) but simply to maintain its relatively high rates of return.

The company’s current Price/Book of 3.62 is about median in its peer group.

Valuation Drivers

Quadrant label definitions. Hover to know more

Outperforming, Harvesting, Challenged, Turnaround

SPK-AU has maintained its relatively high ROE profile from the prior year-end.

ROE % (On Common Equity)
Price To Earnings

Peer Analysis

A complete list of valuation metrics is available on the company page.

Company Profile

Spark New Zealand Ltd. engages in the provision of telecommunications and information and communications technology (ICT) services. It operates through the following segments: Spark Home, Mobile and Business; Spark Digital; and Spark Connect. The Spark Home, Mobile & Business segment provides fixed line, mobile and internet services. The Spark Digital segment integrates information technology (IT) and telecommunications services to provide converged ICT solutions. The Spark Connect segment includes the group’s network and IT operations, shared business operations and servicing of wholesale and international customers. The company was founded on February 24, 1987 and is headquartered in Auckland, New Zealand.

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