1 ASX dividend stock down 44% I think is a bargain buy

This income stock could be far too cheap, in my opinion.

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The ASX dividend stock Spark New Zealand Ltd (ASX: SPK) has declined more than 40% since February 2024. As the chart below shows, the ASX telco share has been in a large and steady decline.

It is one of New Zealand's biggest telecommunication businesses, providing fixed-line and mobile telephone services, broadband, and digital technology services.

The company's recent FY24 result did not help investors feel more confident about the outlook. However, it still demonstrated its passive income credentials, which may attract investors to the company at this lower price.

FY24 earnings recap for ASX dividend stock

The ASX dividend stock reported that its revenue declined 1.2% to $3.86 billion. It also said that reported net profit declined 72.2% to $316 million as a result of 'cycling' the Towerco and Spark Sport transactions in the prior corresponding period, as well as lower operating profit, higher finance expenses and depreciation, and a one-off $26 million tax adjustment relating to recent government policy changes.

Adjusted net profit, excluding one-off items in both years, declined 21% to $342 million.

Broadband revenue declined 2.1% to $613 million, total IT revenue dropped 1.6% to $692 million, mobile service revenue increased 3.1% to $1 billion, and data centre revenue increased 54.2% to $37 million.

Spark said it had been a "tough year", but its business fundamentals "remain strong", and it's focused on earnings growth in FY25.

It also said that its "leadership in the growing mobile market will support future top-line growth as demand for data continues to grow", and annual price reviews can help grow revenue, too.  

Spark then pointed out that the New Zealand data centre market is predicted to grow from around 90MW today to around 500MW by 2030, driven by the acceleration of generative AI and ongoing business migration to the cloud. It has a development pipeline of 118MW, with three strategic Auckland locations "primed for investment" and the ASX dividend stock is "well positioned to capture a significant share of this growth".

The future is more important than the past for Spark, so let's look at what the company said in relation to the next financial year.

FY25 outlook

The company gave the following FY25 guidance, assuming there are no adverse changes in its operating outlook.

Spark said the operating profit (EBITDAI) would be between $1.16 billion and $1.22 billion, compared to $1.16 billion in FY24.

Capital expenditure is predicted to be between approximately $460 million to $480 million.

Spark is expecting to pay a total dividend per share of 27.5 cents per share in FY25, the same as FY24. At the current Spark share price, that represents a potential forward dividend yield of 10% in Australian dollar terms.

As a defensive business with compelling growth potential, this is an attractive option for ASX dividend stock-focused investors, in my opinion.

Motley Fool contributor Tristan Harrison has no position 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 Scott Phillips.

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