The FCF repair trade

Research evidence excerpt

The FCF repair trade

Macquarie Equity Research Spark New Zealand

Investment Thesis

SPK is a cheap FCF repair story. The market has de-rated the stock because of strategic

drift, earnings downgrades, non-core complexity and concern that the dividend is not

supported by sustainably growing cash flow. We retain Outperform because the path

to recovery is now clearer: simplify the business, take cost out, stabilise Enterprise &

Government, use mobile ARPU and mix to drive higher-quality revenue, and grow FCF

sufficiently to support DPS growth from the FY26 reset base.

The debate is no longer whether SPK screens as cheap; it does. The debate is whether

management can rebuild enough confidence in forecasts for the market to capitalise that

yield and FCF stream more constructively. The reason to own SPK now is that valuation

already discounts a high degree of scepticism, while the operational levers required to rebuild

confidence are visible and measurable: FY26 guidance delivery, structural cost-out, mobile

ARPU progression and FCF growth.

We retain an Outperform recommendation because we believe the path to recovery is

credible, albeit execution-dependent. The ingredients are visible: a simpler connectivity-led

model, renewed cost-out discipline, mobile ARPU uplift, more focused capital allocation and a

dividend framework tied to free cash flow. If SPK delivers FY26 guidance, demonstrates cost-

out is structural and converts mobile ARPU momentum into FCF growth, we see scope for a

re-rating from depressed levels

Valuation and Re-Rating Pathway

SPK's current share price reflects a high degree of scepticism. The stock screens attractively

on yield and value, but weak earnings momentum and forecast credibility concerns have