Spark is a good quality telecommunications company, but is seemingly unloved by the market. The legacy fixed voice business (landlines, if you recall such a thing) is down to almost nothing (as it is for companies like TLS, and TPG) and are no longer a material drag.
The other segments, specifically mobile, cloud and networks are all growing well. Indeed, SPK was the quickest growing NZ carrier by connections, over the past year.
Margins are robust, and unlike some cyclicals, we needn’t worry that they are over-earning.
Simple regression models (forecast ROE vs p/book) suggest SPK is mispriced, relative to other names in the sector.
We see it as a good defensive play, at a reasonable valuation, in an uncertain market, with a potential catalyst in the form of the teleco tower monetisation program currently underway.
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