Why the Chorus (ASX:CNU) share price is rocketing 13% on Thursday

Shares in the New Zealand telco are on the rise…

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The Chorus Ltd (ASX: CNU) share price has soared into the green in afternoon trade on Thursday.

Whereas the S&P/ASX 200 Index (ASX: XJO) is 0.56% in the red, Chorus shares are now exchanging hands at $6.83 apiece, a 13% climb from the open.

Today’s gain comes after the New Zealand-based telecommunications infrastructure group provided an announcement earlier. Let’s investigate further.

What did Chorus announce?

Chorus advised that New Zealand’s Commerce Commission has proposed an “initial regulated asset base (RAB) of $5.427 billion” in regards to Chorus’ regulated fibre business.

The Commerce Commission is New Zealand’s equivalent to the Australian Securities and Exchange Commission (ASIC).

Recall that in March, Chorus proposed a “conservative starting RAB of $5.5 billion” on its fibre business.

The Commission then used this RAB value to determine its price-quality decision for the “first regulatory period of fibre” back in May.

The decision referenced an annual revenue range of $689 million to $786 million through 2022 to 2024. From the numbers, the Commission’s RAB value is around 1.4% behind Chorus’ $5.5 billion proposal.

Chorus then made submissions on the draft price-quality decision back in July. It submitted “strong evidence to support changes” to the proposed reductions in allowable operating expenditure.

Under the draft decision announced today, the RAB would commence in January 2022. Chorus stated the Commission’s draft RAB contains “core fibre assets of $3.98 billion”, alongside a “financial loss asset” of around $1.5 billion.

Moreover, the commission noted in its decision that if “all other aspects” of its decision remain unchanged, then it would “lead to a 2–5% reduction in allowable revenue over the PQP1 period”.

The Commission is expected to give its final decision on the RAB in December, as per the release.

What did management say?

Chorus CEO JB Rousselot said:

We welcome this step towards greater certainty for Chorus and our investors. Our aim is to ensure the final RAB reflects the full costs of structural separation required by the public-private partnership with the Government.

We’ve used a lot of our existing infrastructure and spent billions more to roll out the fibre network over the last decade. It’s critical that the true value of our participation in this partnership is recognised so we can keep investing in developing the capability and reliability of fibre broadband for New Zealand.

Chorus share price snapshot

The Chorus share price has had a difficult year to date, posting a loss of 7% since January 1. It has also fallen 5% in the past 12 months.

As a result, these returns have lagged the broad index’s return of around 25% over the past year.

Should you invest $1,000 in Chorus right now?

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The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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