S&P/ASX 200 Index (ASX: XJO) telco stock Spark New Zealand Ltd (ASX: SPK) has come under heavy selling pressure on Friday.
Shares in New Zealand's largest telecommunications and digital services company closed yesterday trading for $3.92. In early afternoon trade today, they are swapping hands for $3.63 apiece, down 7.7%.
For some context, the ASX 200 is down 0.4% at this same time.
This underperformance for the ASX 200 telco stock follows the release of Spark's results for the full year ended 30 June (FY 2024).
Here are the highlights. (Note, all figures are in New Zealand dollars.)
Spark share price sinks on declining profits
- Revenues of $3.86 billion, down 1.2% from FY 2023 on an adjusted basis and down 14% on a reported basis
- Earnings before interest, taxes, depreciation, amortisation, income tax and net investment income (EBITDAI) of $1.16 billion, down 2.5% on an adjusted basis and down 32.5% on a reported basis
- Reported net profit after tax (NPAT) of $316 million, down 72% year on year
- Adjusted NPAT of $342 million, down 21%
- Total FY 2024 dividends of 27.5 cents per share
What else happened with the ASX 200 telco stock in FY 2024?
Spark saw most of its core financial metrics go backwards in FY 2024. Management noted that the ASX 200 telco stock faced headwinds from public sector spending cuts, while deferred private sector investment impacted IT services revenues.
Lower household and business spending dragged on Spark's mobile devices and accessories sales.
With lower EBITDAI and higher interest, lease costs and non-cash earnings, free cash flow dropped 32.5% in FY 2024 to $330 million.
On the plus side, Spark did achieve growth in many of its core markets, including mobile, where service revenue exceeded $1 billion for the first time. The company's cloud, data centres, and high-tech segments also reported year-on-year growth.
In a sign of the AI-dominated times, Spark's data centre revenue grew 54.2% year over year to $37 million.
What did management say?
Commenting on the results pressuring the ASX 200 telco stock today, Spark CEO Jolie Hodson said, "It has been a tough year, and while our FY24 performance was below our ambition, our business fundamentals remain strong, and we are focussed on returning to earnings growth in FY 2025."
Hodson added:
The New Zealand data centre market is predicted to grow from 90MW today to 500MW by 2030, driven by the acceleration of Generative AI and ongoing business migration to the cloud.
With Spark's development pipeline now sitting at 118MW, and three strategic Auckland locations primed for investment, we are well positioned to capture a significant share of this growth and maintain our competitive position in the market…
In FY24 we invested over $350 million into our highly secure and resilient network and digital infrastructure, delivering a 28% increase in mobile network capacity and underpinning growth in data centres, IoT, and high-tech.
What's next for the ASX 200 telco stock?
Looking at what might impact the ASX 200 telco stock in the year ahead, Spark expects FY 2025 EBITDAI in the range of $1.165 billion to $1.220 billion. Capital expenditure is forecast in the range of $460 million to $480 million.
FY 2025 total dividends are expected to remain in line with FY 2024 at 27.5 cents per share.
Spark share price snapshot
With today's fall in the Spark share price factored in, the ASX 200 telco stock is down 22% in 12 months.
