Spark New Zealand "Undervalued but need to be patient" (Buy) Campbell

Research evidence excerpt

Spark New Zealand "Undervalued but need to be patient" (Buy) Campbell

-3 0.12

Telcos are relatively defensive against weaker economy but not immune. We have 06/27E 0.17 0.16 -9 0.14

lowered our FY26, FY27 and FY28 EBITDAF forecasts by 1%, 4% and 4%. Previously we 06/28E 0.20 0.17 -12 0.15

had forecast a economic recovery in 2027 but this has been delayed until late 2027 or

Phil Campbell2028. If the Iran conflict gets resolved quickly petrol prices could fall and this should help

Analyst

pre-paid top ups and retail spending. Government has also announced another ~9k phil.campbell@ubs.com

public sector staff cuts with a shift to AI and Cloud. The short term impact should not be +64-9-913 4872

as bad as 2024 and medium term the Govt wants to implement AI and move workloads

to the cloud which could be positive for SPK. Our EBITDA forecasts are 1% below

consensus and assume flat growth in FY27 and recovery in FY28. We have trimmed our

dividend forecasts and still believe SPK can afford to pay 5cps special dividends in FY28-

FY30E (cut from 7.5cps pa previously).

Valuation: $3.00 (previous $3.50)

Our price target is based on 12-month rolled-forward SOTP and DDM valuations of

$2.90 (prev $3.35) and $3.07 (prev $3.65). Main changes reflect lower mobile EV/

EBITDA multiple for mobile in SOTP given slow growth (6.75x vs 7.0x prev). We have

also lowered our special dividend forecasts given EBITDA revisions with ordinary

DPS CAGR revised down from 8% pa to 6% pa between FY26E and FY30E. SPK's

dividend yield spread vs Telstra has widened to ~280 basis points above its average

which is the highest spread since 2013 (excluding the de-rating in 2025).

Highlights (NZ$m) 06/23 06/24 06/25 06/26E 06/27E 06/28E 06/29E 06/30E

Revenues 4,464 3,820 3,725 3,640 3,650 3,690 3,753 3,830