There weren't many Australian stocks that sank in 2024 – it was a good year for most ASX share sectors. But, Spark New Zealand Ltd (ASX: SPK) was an unfortunate company that plunged more than 40%.
I should point out that, as the name suggests, Spark New Zealand is a true blue Australian stock, though it is listed on the ASX, and a small amount of its revenue is made in Australia. So, like a pavlova, I'll say that's good enough for me to say it's Australian for the purpose of this article.
Spark is New Zealand's largest telecommunications and digital services company. Its customers include individual New Zealanders, households, small businesses, not-for-profits, government and large enterprise clients.
Its main offerings include mobile and broadband, entertainment, cloud services, and tech offerings such as AI, the Internet of Things, and 5G.
Why I think the 'Australian stock' could rebound
FY24 was a rough year for the company. Underlying operating profit (adjusted EBITDAI) fell 2.5%, underlying net profit (adjusted net earnings) declined 21%, and statutory net profit sank 72.2%.
There was a large decline in statutory earnings because the prior year (FY23) benefited from the combined effect of the TowerCo and Spark Sport transactions, whereas FY24 did not have that.
The business also saw lower broadband revenue, IT revenue, procurement and partners revenue, and voice revenue. Earnings were also impacted by higher depreciation and amortisation charges (from higher capital expenditures) and net finance expenses.
The company recently reduced its FY25 guidance because of weak economic activity, despite the reduction of inflation in New Zealand and the official cash rate cuts.
It's understandable why the Spark share price has fallen so far, given its pain. But I think it's an opportunity to rebound.
I believe New Zealand's economy can start to recover following the rate cuts, which could increase spending across various parts of Spark's business.
The company also points out that demand for data continues to grow, and it will try to stimulate revenue growth in the second half of the year through pricing, new campaigns, and new data plans.
It's also looking to improve efficiencies across the business, focusing on "automation, simplification, and resilience while delivering materially higher value over FY25 and FY26".
The business will provide more details on the benefits (and costs) of its 'SPK-26 operation program in February 2025, which I think could be a catalyst for the business.'
Like the Australian stock Telstra Group Ltd (ASX: TLS), I think Spark can benefit from the growing demand for mobile data. Plus, the dividend income should be sizeable at this lower valuation.
Spark is expecting to pay a dividend yield of close to 9% in FY25, which is a strong return by itself. I believe Spark's overall return (dividends plus capital return) can beat the S&P/ASX 200 Index (ASX: XJO) in 2025.
