Promising outlook for NZ telco

This week's Hot Stock, courtesy of Fat Prophets is a telco stock from New Zealand neighbours: Spark New Zealand (ASX: SPK)

Key statistics:

Closing share price 21-6-16: $3.33 52-week high: $3.50 52-week Low: $2.34 Most recent dividend: 11.068c Annual dividend yield: 5.91% Franking: 0%

While a merger between Sky and Vodafone's New Zealand operations is relevant, we view the subsequent weakness in Spark New Zealand's share price, following the announcement, as being overdone. Spark already competes heavily with Vodafone for mobile and broadband customers and doesn't see itself going head-to-head with Sky. Spark New Zealand CEO, Simon Moutter, sees the real competition in the future of media coming from big global players like Netflix and Youtube.

On top of this, any merger of this scale is going to take time to bed down. In the meantime, Spark New Zealand is continuing with its own evolution. We expect shareholder returns over the medium-term to be underpinned by growth in mobile and digital revenues, along with a reduction in capital expenditures.

Greg Smith is head of research at investment research and funds management house Fat Prophets.

Disclosure: Spark New Zealand is held in the Fat Prophets Global Opportunities, Australian Share Income, Concentrated Australian Share and Small/Mid-Cap Models.

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