New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<ul><li>Spark NZ's (SPK) FY24 result was soft, with ‘other gains’ propping up EBITDAI, but not free cash flow (FCF). The result is unlikely to ease investor worries in relation to SPK's declining cash conversion and the sustainability of its dividend. While some of its poor FCF is due to one-off items (large working capital investment), the steady state cash conversion of EBITDAI has deteriorated post its Tower sale. SPK's FCF ambition for FY25 remains below its dividend. SPK has opted to maintain the dividend for now, intending to fund the shortfall, as well as growth capex, with a dividend reinvestment plan (DRP) and by issuing capital notes. In order to maintain its credit rating (a stated ambition), we estimate that SPK needs to issue ~NZ$450m of capital notes in FY25 to make up for the shortfall in cash generation in FY24 and FY25. This is a short-term solution. SPK will have to either reduce its dividend or grow its FCF meaningfully over the next few years. We retain NEUTRAL, with a reduced target price of NZ$4.20.</li></ul>

Spark NZ's (SPK) FY24 result was soft, with ‘other gains’ propping up EBITDAI, but not free cash flow (FCF). The result is unlikely to ease investor worries in relation to SPK's declining cash conversion and the sustainability of its dividend. While some of its poor FCF is due to one-off items (large working capital investment), the steady state cash conversion of EBITDAI has deteriorated post its Tower sale. SPK's FCF ambition for FY25 remains below its dividend. SPK has opted to maintain the dividend for now, intending to fund the shortfall, as well as growth capex, with a dividend reinvestment plan (DRP) and by issuing capital notes. In order to maintain its credit rating (a stated ambition), we estimate that SPK needs to issue ~NZ$450m of capital notes in FY25 to make up for the shortfall in cash generation in FY24 and FY25. This is a short-term solution. SPK will have to either reduce its dividend or grow its FCF meaningfully over the next few years. We retain NEUTRAL, with a reduced target price of NZ$4.20.

Spark NZ - FY24 Result — Lost the Spark

Spark New Zealand

Spark NZ - FY24 Result — Lost the Spark