Sharechat Logo

Chorus stock rise to 13-month high, Spark falls as copper pricing impact mulled

Wednesday 3rd December 2014

Text too small?

Chorus shares rose to a 13 month high after the Commerce Commission lifted the proposed price it can charge customers for access to its copper lines, stoking expectations it will be able to resume dividends in a few years. Spark fell on concern the changes will erode earnings.

The telecommunications regulator's draft determination yesterday sets a limit of $38.39 monthly rental for access to Chorus's traditional copper lines network for broadband internet services. The rental, which had been $44.98, was cut to $34.44 effective Dec. 1. Chorus said the new pricing would slash annual earnings by $80 million, less than half of the $170 million hit it had projected until current pricing.

Chorus rose 5.6 percent to $2.65, adding to a 17 percent jump yesterday and returning the shares to their level in early November last year, when the regulator set the current price. Spark fell 1.7 percent to $2.975, the lowest in more than a month.

The proposed pricing "is within a range that we think seems relatively fair to all parties," said James Lindsay, a portfolio manager at Nikko Asset Management. "It will allow Chorus to reinstate paying dividends, maybe three years out, once it is over the peak of capex and debt."

Chorus suspended dividend payments, renegotiated bank covenants and cut a deal with Crown Fibre Holdings to bring forward some funding of the ultrafast broadband network, to meet its contractual commitments with the government to the rollout. The deterioration in its financial position left the company unable to make the sort of returns to shareholders that are typically expected from an infrastructure company, Lindsay said.

Spark is the biggest customer for Chorus's copper lines and said yesterday that the draft determination could drive up its costs by $60 million a year and hurt earnings, although it was too soon to revise guidance for low single digit growth in adjusted earnings before interest tax, depreciation and amortisation from 2014's $936 million.

Analysts are likely to wind back their forecasts, as consensus for 2015 Ebitda was $956 million.

"I wouldn't be surprised if Spark's Ebitda was below last year's," Lindsay said. Spark had "baked all the benefits" of current copper access pricing into its guidance.

He said while the new pricing is only a draft and the regulator is seeking feedback from industry, he doesn't expect it to be revised much further.

Submissions are due by Jan. 23.

 

 

 

 

BusinessDesk.co.nz

  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comment:
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

19th August 2019 Morning Report
Company results, data, Fed to provide clues on recession risk
NZ dollar range-bound as global growth jitters increase
NZ dollar withstands poor manufacturing data
Bublitz to serve home detention following appeal
Former G8 boss takes over management of Evolve
Precinct boosts earnings, withholds $34m from Fletcher
Sky TV shares rise on US$40m RugbyPass acquisition
Precinct boosts earnings, withholds $34m from Fletcher
Sky TV shares rise on US$40m RugbyPass acquisition

IRG See IRG research reports