Spark earnings draw analyst upgrade, but also some chippe…

Analyst Arie Dekker now tips a lower 16cps dividend, down from his earlier forecast 17cps.

Spark's Auckland staff moved into the newly constructed Fifty Albert tower last year. Photo / NZ Herald Analysts saw no major surprises in Spark’s first-half earnings, delivered yesterday. That was seen as a positive after the telco’s rocky FY2025, which saw two first-half downgrades, an earnings miss and a full-year downgrade. “It was not a surprise as much as a relief as the company reaffirmed full-year FY2026 guidance,” said Michael De Cesare, a portfolio manager for Amova (formerly Nikko Asset Management).

“Following a challenging period for the business, Spark’s confirmation of guidance for FY26E [full year 2026 estimate] was a relief, albeit with uncertainty on revenue,” he said in a post-earnings note. But although the FY2025-style whiplash was absent, there was perhaps not enough detail for some. Dekker said Spark had offered “little to fill in the gaps in a revenue and earnings environment that is challenging”.

Spark “gave little away” in several areas including plans for “its struggling IT business” and “areas that have failed to fire”, including its Mattr unit (most recently pitched as a digital credentials business) and succession. The “lack of visibility in key areas” saw Dekker downgrade his full-year dividend estimate from 17 cents per share (cps) to 16cps. Spark yesterday declared an 8cps half-year dividend and reaffirmed full-year free cashflow guidance of $290m-$330m, which it earlier said would underpin a full-year dividend of 15 to 17cps, compared to 25cps for FY2025 and 27.5cps for FY2024.

Dekker maintained his “underperform” rating and reduced his 12-month target price from $2.83 to $2.47 (shares closed yesterday down 1c to $2.13, and were at $2.15 in midday Thursday trading). He reduced his full-year operating earnings estimate to $1.036b (at the midpoint of Spark’s guidance) and now sees earnings ahead – $1.036b in FY2027 and $1.021b in FY2028. Forsyth Barr upgraded Spark from “underperform” to “neutral” following yesterday’s earnings, but reduced its 12-month price target from $2.40 to $2.35.

“Mobile, broadband and free cash flow were all in line with what we were expecting,” Forsyth Barr analyst Ben Crozier told the Herald. “Mobile was the most important,” he said. Spark makes around half of its operating profit from the segment. “Mobile arpu [average revenue per user per month] was a bit stronger with good price increases coming through, but mobile connections were a bit softer.” Spark’s mobile share slipped 0.5% but it earned more per customer, which saw it realise a 1.6% increase in mobile service revenue (ahead of ForBarr’s 1% estimate) to $499m.

“The biggest negative was IT services. There’s cyclical pressure, but also customers moving from legacy to more modern systems with lower arpu and margins.” Yesterday, Spark said cloud revenue increased 1.7% to $120m but managed services were a continued pain point, falling 19.7% to $49m. Chief executive Jolie Hodson said on an earnings call, “The broader economy shows early signs of stabilisation”.

She later told the Herald, “We’re seeing some improvement in consumer, but it’s more mixed in terms of business.” Spending hadn’t returned to pre-slowdown levels, “but we’re starting to see some rebound in activity”. Hodson said the “strong launch” of Apple’s iPhone 17 had helped Spark’s mobile numbers. At an event in Auckland today, Samsung New Zealand vice president, mobile and consumer electronics Jens Anders told the Herald that there was a big wave of handset sales during Covid lockdowns.

Many were now rolling toward the end of a two or three-year contract with their phone company, just as new models were coming to the market. He did caution, however, that the industry also faced “RAM-aggeddon” or memory chip shortages, caused by the AI boom, that could drive up the prices of cheaper phones. He saw more expensive models being insulated by dint of having higher margins – and his own company potentially inoculated through being one of the largest makers of memory chips.

“The work we’ve done around resetting the strategy, whether that’s the data centre transaction, the transformation we’ve done, the partnerships, all of those things are coming to fruition and delivering that step-up in earnings in the first half.” The transformation has included a series of big-bang moves, including laying off 1300 staff to cut more than $50m from Spark’s labour costs, selling its remaining stake in its mobile tower network and the sale of 70% of its data centre business to Australia’s Private Equity Partners.

“The model shifts we made last year were substantial. I don’t expect them to repeat in the current year,” Hodson said. Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.

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