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Has Spark New Zealand Limited (NZSE:SPK) Improved Earnings In Recent Times?

Understanding Spark New Zealand Limited’s (NZSE:SPK) performance as a company requires examining more than earnings from one point in time. Today I will take you through a basic sense check to gain perspective on how Spark New Zealand is doing by evaluating its latest earnings with its longer term trend as well as its industry peers’ performance over the same period.

See our latest analysis for Spark New Zealand

Commentary On SPK’s Past Performance

SPK’s trailing twelve-month earnings (from 31 December 2017) of NZ$412.00m has increased by 5.64% compared to the previous year. However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 15.43%, indicating the rate at which SPK is growing has slowed down. To understand what’s happening, let’s examine what’s occurring with margins and if the rest of the industry is feeling the heat.

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Over the last couple of years, revenue growth has fallen behind earnings, which suggests that Spark New Zealand’s bottom line has been propelled by unsustainable cost-cutting. Eyeballing growth from a sector-level, the NZ telecom industry has been enduring some headwinds in the past twelve months, leading to an average earnings drop of -4.55%. This is a major change, given that the industry has constantly been delivering a a strong growth of 13.84% in the past five years. Since the Telecom sector in NZ is relatively small, I’ve included similar companies in the wider region in order to get a better idea of the growth, which is a median of profitable companies of companies such as Chorus, Telstra and . This shows that any near-term headwind the industry is enduring, the impact on Spark New Zealand has been softer relative to its peers.

NZSE:SPK Income Statement Export August 23rd 18
NZSE:SPK Income Statement Export August 23rd 18

In terms of returns from investment, Spark New Zealand has invested its equity funds well leading to a 25.98% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 12.38% exceeds the NZ Telecom industry of 7.78%, indicating Spark New Zealand has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Spark New Zealand’s debt level, has increased over the past 3 years from 18.66% to 21.53%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 83.14% to 74.40% over the past 5 years.

What does this mean?

Spark New Zealand’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Companies that have performed well in the past, such as Spark New Zealand gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. I recommend you continue to research Spark New Zealand to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for SPK’s future growth? Take a look at our free research report of analyst consensus for SPK’s outlook.

  2. Financial Health: Are SPK’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.

  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2017. This may not be consistent with full year annual report figures.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.