The Chorus Ltd (ASX: CNU) share price has fallen lower this morning despite credit rating agency Moody's releasing a broadly positive research update on the New Zealand telco.
What was in the Moody's update?
Moody's Investor Services said Chorus' long-term rating remains unchanged at Baa2 with a 'Stable' outlook and therefore still in the investment-grade category.
The update states that Moody's expects to revise Chorus' current financial leverage tolerance threshold in 2021, following the Commerce Commission's final determination on the fibre price path for Chorus.
This reflects Moody's expectation of declining capital spending on the company's UFB project, reducing cash outflows and execution risks to place Chorus' risk profile more in line with other regulated utilities.
Moody's consider Vector the most comparable rated peer for Chorus, but note that Chorus' greater competition and technology risk suggest a tighter leverage tolerance threshold.
What does this mean for the Chorus share price?
The Chorus share price has dipped 0.4% this morning, however, this may have a lot to do with the S&P/ASX 200 (INDEXASX: XJO) index falling 1.5% so far in today's trade.
While the Moody's update is broadly positive and notes several credit positives for Chorus, that doesn't necessarily translate into further upside for equity holders.
While items such as greater capitalisation and increasing balance sheet strength can protect bondholders, it can also tie up a lot of Chorus capital that could otherwise be spent on value-add investments or reinvestment in the business.
How has the Chorus share price performed?
The Chorus share price has surged 18.1% so far this year but still trails the ASX 200's year to date performance, as well as the performance of many of its peers.
The Chorus share price closed lower following its most recent quarterly update after the New Zealand telco saw fibre connections grow to 50% of the company's total broadband connections.
Total broadband connections grew by 5,000 to 1.196 million, led by demand for 1 Gbps, with an increase of 8,000 connections on March 2019 numbers to 58,000 connections.
Overall, Chorus has been a solid performer in the telco sector but I still prefer Telstra Corporation Ltd (ASX: TLS) shares at the moment as they continue to rebound in the second half of the year.
