The growth investor’s guide to Spark New Zealand Ltd shares

Spark New Zealand Ltd (ASX: SPK) is moving in the right direction by moving away from traditional telecommunications infrastructure and focusing on the future of digital communication and IT services. It is also upgrading its internal systems to be more efficient, cost effective, and in line with today’s digital systems.

Spark New Zealand is an NZ telecommunications service provider, offering a range of services and products to consumers and businesses.

Management is continuing the strategic shift that commenced in 2013 from a traditional telecommunications infrastructure company to a digital services company and is continuing to simplify and digitise, products and services. Management is also cutting costs in certain areas and re-investing the money in new growth areas.

In FY17, the Mobile division increased connection numbers by 4.3% to 2.3 million users, which was more than rival Vodafone NZ, whose parent company is UK listed-Vodafone Group plc (LON: VOD).

Revenue growth was up 5.6% to $1,197 million, this was mainly from sales of high end mobile devices and increased service revenue.

Wireless broadband revenues increased 0.6% to $689 million. Thanks to customers choosing higher value broadband plans and connection growth was up 1.8% to 687,000.

IT Services revenues were up 19% coming in at $783 million and contributed the most to revenue growth overall, with platform IT being the bulk of that number.

The acquisition of Computer Concepts Limited has also been accretive, contributing an additional $44 million in IT service revenue compared to FY16.

There is still a lot of growth potential in this area as a large percentage of New Zealand companies have not utilised cloud based operating systems.

In February, Spark and Netflix, the global internet television network, announced an exclusive partnership that gives Spark broadband customers a subscription to a Netflix, Inc. (NASDAQ: NFLX) standard plan for one year when they sign up to a 24 month Unlimited Data Spark broadband plan.

Partnerships like this with leading brands, including an existing arrangement with Spotify, will differentiate the company from competitors like Vodafone and 2degrees and help keep market share.

Management is on the right track moving away from the legacy products and into the digital age, with Mobile, IT services and broadband doing well. The success of cost-out programs to improve margins coupled with excellent customer retention rates, will sustain market share and keep revenues steadily growing.

The share price has been trending up since 2010 and is currently $3.25, down from a recent high of $3.77

Spark trades on a P/E ratio of 15 and offers a good dividend yield of 6%.

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Motley Fool contributor Christopher Coe has no financial interest in any company mentioned. The Motley Fool Australia owns shares of Greencross Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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