The media report on the data centre business is attributed to Jarden. It discusses Spark's strategic review of its capital structure and dividend policy, driven by factors like asset sales and a potential data centre transaction. This info from FNArena:
Jarden’s latest update zooms in on the expectation of an “inevitable” dividend resizing for Spark New Zealand. The analyst has been highlighting the possibility for the last 18 months to align pay outs to shareholders more closely with the company’s “real” cash flow.
In this context, the balance sheet remains robust, but conflicting levers between earnings pressures in FY26 against a desire to retain its A-credit rating point to a dividend near the lower end of the communicated range.
At the 1H25 earnings report, Jarden emphasised the NZ20c per share dividend might become the new target, but more substantial cuts are required. A NZ25c dividend for FY25 is currently forecast.
The analyst envisages a dividend per share re-sizing inside the range of NZ15c-NZ17.5c. Its forecast for FY26 ranges from NZ17c to NZ20c, based on forecast free cash flow of NZ16c or around NZ20c excluding data centres, which the company is considering taking off balance sheet.
The downsizing is expected to be announced with the release of FY25 results in late August.
Jarden observes management’s cost-out program, while trading conditions are expected to remain challenging into FY26, which should affect mobile revenues and the IT business.
The broker’s target price has been reset to NZ$2.80 from NZ$3.10 with an Overweight (Buy-equivalent) rating retained. The market would likely welcome the reset to restore credibility, the broker suggests, as well as announcements on a revised strategy on mobile, details on the cost-out, and on how the data centre JV is progressing.
Macquarie also believes a new dividend policy will be instated from FY26 onwards based on free cash flow projections, alongside changes in working capital and capex growth, as well as restructuring costs.
A rebasing to around NZ15c per share from FY26 is anticipated, with a future dividend payout ratio of around 70%-90%, with renewed scope for growth in dividends as earnings advance and flexibility is reinstated around the payout ratio.
Up until FY25, shareholders had been receiving gradual increases in annual payouts to NZ27.5c, but the trend is about to reverse with this year’s payout forecast to be NZ25c and next year’s payout expected to be substantially lower.
FNArena’s three daily monitored brokers, consisting of Macquarie, UBS and Morgan Stanley, are currently suggesting FY26 will see the dividend decline to NZ19c only.
The prospect of reduced cash rewards for loyal shareholders has weighed heavily on the shares, with the share price declining from near $5 in early 2024 to $1.96 at yesterday’s close.
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