Joining the Chorus

This company stands to profit from building the Kiwi version of the NBN.

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Every Australian investor knows Telstra (ASX: TLS), and is familiar with the National Broadband Network. What is perhaps less well known is that a similar effort is underway across the Tasman – and one value-priced company with irreplaceable assets stands to benefit.

The Kiwi NBN

In New Zealand, dual-listed Chorus (ASX: CNU) has been awarded the rights to build out much of the Ultra-Fast Broadband Initiative (UFB), the Kiwis' equivalent to the NBN.

In completing its portion of this project, Chorus will build "fibre-to-the-premises" in 24 of that nation's largest 33 population centres. As part of the public-private partnership, the New Zealand government is subsidising this work to the tune of nearly NZ $1 billion.

The project is already underway, with the company receiving the subsidy on an incremental basis as it completes the work. While able to use much of its existing network to complete its portion of the UFB, the company still incurs costs in excess of the subsidy (more on this later). Chorus' work on the UFB is due for completion by the end of 2019.

Today, Chorus has nearly two million "fixed line" connections — think home phones, representing some 93% of all New Zealand's fixed lines — and about 1 million total broadband connections. When the UFB work is completed, the company will also possess much of the country's largest and fastest fibre broadband network.

Valuable assets and the key point for investors

With these valuable assets, and following its demerger about two years ago from Telecom New Zealand (ASX: TEL), Chorus is New Zealand's foremost telco "wholesaler."

In short, the company sells access to its considerable telco assets and makes money when, for instance, Telecom New Zealand or another retail company purchases access (for the purpose of selling voice and Internet packages to consumers).

The key point for investors is the irreplaceable nature of Chorus' assets.  Such assets should produce plenty of cash, and the company appears committed to paying out much of this cash to shareholders in the form of dividends.

The company has guided to a full-year 2013 dividend payment of NZ 25.5¢ per share, while Chorus shares have lately been trading just north of $2, or less than six times earnings and three times sales. But the sailing isn't guaranteed to be smooth, and there are a few risks current and future investors need to keep in mind.

Costs rising, plus regulatory concerns

It should come as no surprise: Large-scale projects like the UFB are almost always more expensive in implementation than they looked to be in the earlier, planning stages. While Chorus initially estimated the cost of its UFB build to be between NZ$1.4 and $1.6 billion, newer estimates run to between NZ$1.7 and $1.9 billion. The company also has a considerable, but to all appearances manageable, debt load.

Additionally – and this looks to be in part behind the low share price – the regulatory environment is somewhat unclear for Chorus just now. The New Zealand government is able to regulate some of the prices Chorus charges for its various services. In December, a draft ruling from New Zealand regulators warned of a cut to wholesale broadband prices that could significantly affect Chorus' earnings. The company has responded, but the outcome isn't yet clear.

Foolish takeaway

As a value-priced dividend play, Chorus shares could be attractive (but remember, the dividends aren't franked). Investors will want to keep close tabs on the outcome of regulatory decisions before jumping in – so stick this one on your watch list and wait for news before making beautiful music with Chorus.

With its legendary, fully franked 28 cent dividend, Telstra is the darling of Aussie investors. Chances are even if you don't own Telstra shares directly, your superannuation fund does. But with its share price skyrocketing over the past year, is Telstra past its prime? Click hereto find out whether to buy, sell, or hold Telstra in this brand-new FREE report.

More reading

Motley Fool writer/analyst Catherine Baab-Muguria does not own share in any company mentioned.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »