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Post Market Wrap | Spark New Zealand establish separate subsidiary to own 1263 mobile phone tower assets

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This Post Market Wrap is presented by KOSEC – Kodari Securities

  • Spark TowerCo to assume financial responsibility for 10-year future infrastructure build programme  
  • Spark New Zealand to focus on network and spectrum services and other active operating assets that drive market competitiveness 
  • Spark TowerCo separation optimises Spark capital structure and supports long term shareholder value accretion.

Spark New Zealand Limited (‘Spark‘ or the ‘Group‘), formerly Telecom New Zealand, is the country’s largest telecommunications and digital services provider, providing mobile and broadband services across New Zealand. Spark employs 5000 people, servicing consumers, business and government, through 24 regional business hubs and 67 retail stores. Spark’s comprehensive service range covers mobile, broadband, cloud and digital services as well as entertainment. The Company’s infrastructure supports 2.4 million mobile connections and reaches 98 percent of New Zealanders through 1500 mobile sites and 18 data centres. 

Spark TowerCo  

Spark New Zealand has appointed Forsyth Barr and Jarden to undertake an engagement process to assess the appetite for institutional investors to subscribe capital to its infrastructure subsidiary, Spark TowerCo.    

This follows a detailed review of Spark’s capital-intensive future infrastructure needs. The review also focused on the Group’s existing infrastructure portfolio, comprising 1500 passive mobile tower assets. Spark has an ambitious infrastructure build programme ahead to support New Zealand’s increasing data needs and new technologies like 5G, and ultimately 6G. This future build programme will require many smaller sites, closer to the end customer, and greater overall densification. Spark have concluded that infrastructure assets like mobile phone towers do not provide a competitive advantage in the telecommunications business. However, a specialist infrastructure focus on passive mobile phone tower assets does support ongoing service innovation, and efficiency, by reducing costs and increasing speed to market for these infrastructure build programmes.  

The issue for Spark is how to finance this infrastructure build programme in the most capital-efficient way.

Spark consider the optimal capital solution is to hive off 1263 of its 1500 mobile phone towers into the subsidiary, Spark TowerCo. This infrastructure owner subsidiary has natural appeal to risk-averse investors with a focus on critical infrastructure assets that generate dependable, recurrent, long term cash flows. Mobile phone towers are ideally suited to investors seeking capital stable returns from privileged assets under long dated contracts with low credit risk counterparties such as Spark. 

A key outcome for Spark shareholders is that the substantial investment necessary to modernise its mobile network and improve mobile coverage will be taken up by income-conscious investors who have an appetite for these passive, infrastructure assets. This enables Spark shareholders to optimise their capital returns by focusing on active assets that drive competitiveness and deliver higher margins. These assets are the core network and radio equipment assets that sit on the phone towers and offer differential service levels to that provided by Spark’s competitors, such as Vodaphone.   

The Spark TowerCo proposal is similar to the Telstra InfraCo Towers proposal announced several weeks ago. InfraCo Towers will own and operate Telstra’s mobile phone tower assets. The investor demand and resultant market valuations for these Telstra assets should be a useful guide for prospective Spark TowerCo investors.

Image: File

Looking Ahead 

Like TelstraSpark understand the fundamental investment principle that a business doesn’t need to own an asset, in order to exploit it. Separating capital intensive, low risk assets into a separately owned vehicle, with exclusive ‘right of use’ provisions, enhances existing Spark shareholder returns by optimising the use of equity capital. 

Spark New Zealand has given Spark TowerCo a 10-year commitment to a comprehensive new tower site build out programme. This is an equally positive outcome for Spark New Zealand shareholders, because it relieves Spark shareholders of equity dilution by not having to contribute substantial fresh capital to passive assets that cannot deliver the superior returns on equity derived from operating assets.

Spark understands that the future is digital as it experiences strong demand from NZ businesses and consumers seeking to digitise and transform their telecommunication needs. This trend is driving demand for Spark’s infrastructure assets. 

The ability for Spark to use and operate these infrastructure assets without incurring a substantial capital expenditure burden is positive for Spark shareholder value accretion over the long term.

This Post Market Wrap is presented by Kodari Securities, written by Michael Kodari, CEO at KOSEC.

"Michael Kodari is one of the world's most consistent, top performing investor. A philanthropist and one of the prominent experts of the financial markets, he has been referred to as ‘the brightest 21st century entrepreneur in wealth management' by CNBC Asia and featured on Forbes. Featured on TV as the "Money Expert", on the weekly Sunday program "Elevator Pitch", he is recognised internationally by governments as he was the guest of honour for the event "Inside China's Future", chosen by the Chinese government from the funds management industry, attended by industry leaders, when they arrived in Sydney Australia, on April 2014. Michael and George Soros were the only two financiers in the world invited and chosen by the Chinese government to provide advice, and their expertise on Chinese government asset allocation offshore. With a strong background in funds management and stockbroking, Michael has worked with some of the most successful investors and consulted to leading financial institutions. He was the youngest person ever to appear on the expert panel for Fox, Sky News Business Channel at the age of 25 where he demonstrated his skillset across a 3 year period forming the most consistent track record and getting all his predictions right over that period. Michael writes for key financial publications, is regularly interviewed by various media and conducts conferences around the world."

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Inflation rise reduces chances of Reserve Bank rate cut

Inflation spikes, drastically reducing chances of a Reserve Bank rate cut amid economic pressures and rising costs

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Inflation spikes, drastically reducing chances of a Reserve Bank rate cut amid economic pressures and rising costs

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In Short:
– Rate cut likelihood by the Reserve Bank has decreased due to a rise in annual inflation to 3.2 per cent.
– Significant price increases in housing, recreation, and transport are raising concerns for the Reserve Bank.

The likelihood of a rate cut by the Reserve Bank has decreased significantly after a surge in annual inflation.

The Australian Bureau of Statistics reported that inflation for the year ending September rose to 3.2 per cent, reflecting a 1.1 per cent increase.

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Trimmed mean inflation, a crucial measure for the Reserve Bank, was recorded at 1 per cent for the quarter and 3 per cent for the year. The bank anticipates inflation to reach 3 per cent by year-end, while trimmed mean inflation is expected to slightly decrease.

The quarterly rise of 1.3 per cent in September exceeded expectations. Governor Bullock noted that a deviation from the Reserve Bank’s projections could have material implications.

Financial markets reacted promptly, with the Australian dollar rising against the US dollar, while the ASX200 index fell.

The most significant price increases were observed in housing, recreation, and transport, indicating widespread price pressures that concern the Reserve Bank.

Despite the unexpected inflation rise, some economists believe the Reserve Bank may still consider rate cuts in December, viewing current price spikes as temporary due to the winding back of subsidies.

Economic Pressures

Broad-based economic pressures suggest that the Reserve Bank may not reduce interest rates at its upcoming meeting. Analysts highlight the need for ongoing support for households facing cost-of-living challenges.


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Wall Street hits record highs on low inflation

Wall Street hits record highs on cool inflation and strong earnings ahead of key Federal Reserve interest rate decision

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Wall Street hits record highs on cool inflation and strong earnings ahead of key Federal Reserve interest rate decision

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In Short:
– U.S. stocks rose to record highs on Friday due to lower inflation and strong corporate earnings.
– Key earnings reports from major companies are expected next week, influencing market trends.
U.S. stocks rose to record highs on Friday due to lower-than-expected inflation data and positive corporate earnings.The S&P 500 and Nasdaq achieved their largest weekly gains since August. The Dow saw its biggest jump from Friday to Friday since June.

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The Labor Department reported that the Consumer Price Index was slightly cooler than analysts’ predictions, easing concerns about inflation impacts from tariffs. This development suggests a likely interest rate cut by the Federal Reserve at its upcoming meeting.

Ryan Detrick from Carson Group noted the positive inflation news may facilitate forthcoming Fed rate cuts. Despite the ongoing government shutdown affecting data releases, this CPI report provided much-needed clarity.

Earnings reports are continuing, with 143 S&P 500 companies having reported results. Growth expectations for third-quarter earnings have risen to 10.4%. Detrick indicated a strong opening to the earnings season with a significant percentage of companies exceeding expectations.

This coming week, key earnings will be reported from Meta Platforms, Microsoft, Alphabet, Amazon, and Apple, alongside industrial companies like Caterpillar and Boeing.

The Dow rose 472.51 points to 47,207.12. The S&P 500 increased by 53.25 points to 6,791.69, while the Nasdaq gained 263.07 points, reaching 23,204.87.

Alphabet gained 2.7% following a deal expansion with Anthropic. Coinbase saw a 9.8% increase from a JPMorgan upgrade. In contrast, Deckers Outdoor’s shares fell 15.2% after lowering sales forecasts.

Market Trends

Advancing stocks on the NYSE outnumbered decliners by 2.18 to 1. The S&P 500 had 34 new highs, with the Nasdaq recording 124.

Trading volume was 19.04 billion shares, lower than the average of the past 20 days.


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US stocks face tests from Tesla, Netflix earnings

US markets brace for Tesla and Netflix earnings amid rising volatility and delayed inflation data

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US markets brace for Tesla and Netflix earnings amid rising volatility and delayed inflation data

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In Short:
– Earnings reports from Tesla and Netflix might affect U.S. stock performance next week amid high inflation concerns.
– Increased market volatility arises from U.S.-China trade tensions and fewer S&P 500 stocks in an uptrend.
This coming week, earnings reports from companies including Tesla and Netflix are anticipated to impact U.S. stock performance.
Investors are also awaiting delayed U.S. inflation data, which could test market stability as it remains near record highs.Recent trading activity has shown increased volatility, influenced by ongoing U.S.-China trade tensions and concerns regarding regional bank credit risks. The CBOE volatility index has seen a rise, indicating increased market uncertainty.

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The S&P 500 entered its fourth year of growth amidst these fluctuations, having previously experienced a period of calm. Experts suggest market risks are intensifying as valuations reach peak levels.

Market Volatility

Concerns regarding U.S.-China trade relations escalated last week when the U.S. threatened to raise tariffs by November 1 over China’s rare-earth export policies. President Donald Trump is scheduled to meet with President Xi Jinping in two weeks to discuss these issues.

Despite these challenges, major stock indexes gained ground over the week, with the S&P 500 up 13.3% year-to-date. However, a noticeable decline in the number of S&P 500 stocks in an uptrend raises caution among investors about underlying market weaknesses.

The upcoming third-quarter earnings will be closely monitored, especially as the government shutdown halts economic data releases. Companies like Procter & Gamble, Coca-Cola, RTX, and IBM are due to report. The delayed U.S. consumer price index is also expected to provide crucial insights ahead of the Federal Reserve’s monetary policy meeting on October 28-29.


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