Paul McBeth is the editor of Curious News and The Bottom Line, having worked at BusinessDesk for 15 years.
Spark New Zealand has been copping it of late, and with good reason.
Under the watch of the current team, Spark has shed $6.65 billion of value with the share price languishing around a 13-year low.
The 65% slump from a peak of $5.50 in September 2022 to a trough of $1.945 this week is a touch shy of the 66% dive of the mid-2000s when the old Telecom misread the room under Helen Clark’s government and was caught out on the regulatory front, while also struggling with its foray across the Tasman.
Not the best company to keep, although the current crop of senior leaders might well look longingly at the stellar sale of Yellow Pages in the dying days of Theresa Gattung’s rein that’s still lauded as one of deals of the century.
Now, commentators are itching for action and questioning how far the company has got from its core business, which to be fair, is hard to distil to one line.
Spark’s far from the old-fashioned telco, clipping the ticket on phone calls and messages between landlines and mobile devices, or tolling you for using its broadband service.
That stuff’s important, but Spark's earnings increasingly relied on IT services work. And when the tide turned on the economy and everyone started tightening their belts, lo and behold, the work dried up for the telco.
Throw in some bold, and capital hungry, plans and perhaps the idea that Spark was a utility-style investment that was always going to spit out a reliable dividend à la the Telecom of yesteryear might’ve been a little unfair to cling to.
Howling at the moon
Which isn’t to say that the howling animal spirits mean Spark is a dog.
This is still the country’s biggest telecommunications player and has a lot of life left in it, even if rivals Two Degrees Mobile and One New Zealand are getting scrappier, and Elon Musk’s world domination of communications via Starlink satellite pose some pretty hefty risks.
So it’s not surprising to see that the buyers at these subdued levels are some of the cannier investors around, such as Cushing family, who are typically happy to hold for a long time.
And by long term, we don’t mean the nonsensical five-year horizon that gets bandied about by some investment types as a long time. We mean Mainland Cheese-style ‘good things take time’ long term.
Because even if the dividend gets cut during Spark’s capital structure review as everyone thinks, it will still probably deliver an attractive yield to someone willing to sit patiently.
Speaking of Mainland and patience, those will be two things on the minds of the 6,700 or so unitholders of the Fonterra Shareholders’ Fund.
You’d be forgiven for missing Fonterra Cooperative Group’s rather good first-half earnings this week – we’d been primed to expect it and most column inches have been enamoured by the various shareholder stoushes on the local bourse.
But the units have climbed as high as $5.80, a level not seen on an adjusted basis since the pre-whey protein concentrate recall days back in 2013.
The white gold rush
Everyone was optimistic that the novel way to get exposure to Fonterra’s earnings was the second coming on the local stock exchange, with a mighty stag on debut at a time when Chinese buyers couldn’t get enough of our white gold.
A big issue that wasn’t widely understood was that milk prices are actually more volatile than oil in the peak to trough and the structure of the fund meant the fund’s unitholders were always going to be treated as the poor cousins to the cooperative’s shareholders.
We can well remember a Fonterra lobbyist fresh from the ninth floor trying to convince a group of oh-so-cool business journo types that cutting the dividend to pay a higher farmgate price was actually a good thing for unitholders.
And the decision not to put a bullet in the fund when Fonterra overhauled its capital structure rankled, but as the cooperative’s earnings have improved amid the ruthless focus on return on capital, the world’s biggest dairy exporter might just have won over institutional investors who were rightly wary of it through much of the 2010s.
That was the big question when Fonterra was weighing a spin-out of its Australian business a few years ago – can the capital markets trust it?
And while that was put on ice, the roadshow across Australasia and Asia for potential investors in a Mainland initial public offering seems to have fired up the imagination of the local community, even if its sole purpose is ultimately to add some extra price tension to a trade sale.
And irrespective of which way that goes, the Fonterra fund unitholders might just start to feel a bit happier about some of their life choices if they get a nice chunky capital return.
The attraction of the fund was meant to be the value-added earnings component of Fonterra’s business, which has always been the trickier part to unleash given its farmer-shareholders still have bills to pay and mouths to feed from the farmgate price they get for their milk.
And if Fonterra can extract a better return for both its shareholders and the indirect investors, it just goes to show that good things really do take time.
Which brings us back to the patience of the Cushings.
We know they’re a family that knows how to flex – just take a gander at PGG Wrightson a few years ago – but their Spark position is a timely reminder that the sound and the fury of headline writers often signifies nothing.
As much fun as it is watching tensions boil over, the organisations that attract our hard-earned investment dollars are typically bigger than the egos driving them, and time is actually on your side.
Image from Curious News.
