Spark New Zealand Ltd.

The stable outlook reflects our view of Spark's solid market position and commitment to maintaining a conservative capital structure and a single 'A' band credit rating. These factors will likely mitigate the impact of the group's exposure to structurally declining fixed-line revenues, and the telecommunication industry's competitive dynamics. We expect Spark's credit metrics to remain in line with the 'A-' rating over the next 24 months. This includes the debt-to-EBITDA ratio staying below 1.7x. Downward rating pressure could emerge if Spark's fully adjusted debt-to-EBITDA ratio exceeds 1.7x. In particular, we could lower the rating if the company prioritizes shareholder returns over maintaining its conservative capital structure. A significant and persistent erosion of market share across Spark's businesses could also pressure

...Spark New Zealand Ltd.'s upside to earnings is limited, in our view. We expect the company's earnings to remain stable, with pricing power limited by market dynamics and competition, as well as COVID-19 fallout. On the mobile telecommunications front, revenues are hit by a decline in high-margin roaming revenues due to pandemic-related border closures. In the highly competitive fixed broadband market, margins are likely to remain under pressure despite Spark's strong market position. As a result, we anticipate growth in adjusted EBITDA to be low at 0%-2% annually in fiscals 2021 (ending June 30, 2021) and 2022. Spark's dividend reinvestment plan (DRP) should help it to preserve its low leverage. We believe the company's decision to reinstate its DRP for the final dividend for fiscal 2020 and for dividends for fiscal 2021 signals its commitment to the 'A' band rating. We project Spark's debt-to-EBITDA ratio will be 1.6x-1.65x in fiscals 2021 and 2022. The ratio was 1.65x in fiscal 2020,...

Full Report