Spark shares jump to four-month high on fatter dividend as CEO Moutter chases revenue growth

UPDATED: Spark [NZX: SPK] shares jumped to a four-month high after the telecommunications company signalled plans to pay bigger dividends as it starts chasing revenue growth for the first time in six years.

In reporting improved underlying earnings, the Auckland-based company's board today announced a final dividend of 11 cents per share taking the annual payout to 20 cents, ahead of the 18 cents expected by analysts, and signalled plans to raise that again to 22 cents in the 2016 financial year. The board threw in another sweetener with a 3 cents per share special dividend flagged for the 2016 year to return excess capital.

The shares rose as high as $3, and were recently up 8.2 percent at $2.985. That prices the prospective 2016 return at a gross dividend yield of 8.4 percent.

"The company has surprised the market a little with an improved performance and the better dividend payout as well," said Grant Williamson, a director at Hamilton Hindin Greene in Christchurch.

Spark is targeting revenue growth to drive earnings, having not boosted sales since the 2009 financial year, and is focusing on getting existing customers to spend more on mobile and data services, rather than simply expanding customer numbers.

"We can see now a path towards revenue growth, we've been signalling this for the last two years that we felt we could achieve this in FY16/17, and we're getting more confident on that," chief executive Simon Moutter told analysts on a conference call. "We're looking forward to that revenue profile with hopefully getting a little bit forward in FY16."

Moutter said the company has gone through most of the transformation programme into a mobile and data focused service provider, and was now in a position to increase its return to shareholders.

"We're clearly viewing that we can return to revenue growth and wouldn't bother with that unless we could return to earnings growth, so we're taking the view of what earnings will look like and therefore set the ordinary dividend element with a view of that," he said.

The level of next year's dividend will probably be more than 100 percent of earnings, which Spark's balance sheet will be able to absorb, before falling below that ratio in following years, Moutter said.

Spark reported a net profit of $375 million, or 20 cents per share, in the 12 months ended June 30, from $460 million, or 25 cents, a year earlier when the company reaped a one-off gain from the sale of its AAPT unit.. Stripping out the year earlier gain, profit was up 19 percent, and ahead of Forsyth Barr's forecast of $356.4 million.

Earnings before interest, tax, depreciation and amortisation rose 2.8 percent to $962 million, in line with Spark's guidance for low single digit growth, while revenue fell 2.9 percent to $3.53 billion, also in line with guidance. The company anticipates Ebitda to rise between zero and 3 percent in the 2016 financial year.

(BusinessDesk)