Greg Smith: Devon Funds Head of Retail on Spark selling 75 percent of its data centre business to Australia’s Pacific Equity Partners

Spark New Zealand is selling 75 percent of its data centre business for about half a billion dollars.

Australian-owned Pacific Equity Partners is taking the controlling share of the $705-million-dollar business.

Spark will move its data centre assets and operations into a new stand-alone company.

Devon Funds Head of Retail Greg Smith explains what this could mean for the business.

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Episode Transcript

Speaker 1 (00:00):
Ever, duplicy Ellen. So Spark has sold seventy five percent
of its data center business to ossie firm Pacific Equity Partners.
PEP is paying four hundred and eighty six million dollars
for this, along with another eight ninety eight million dollars
if performance targets are hit by the end of twenty
twenty seven. Greg Smith is the head of retail for
Devon Funds and with us Hey.

Speaker 2 (00:17):
Greg Hey, good evening, Heather.

Speaker 1 (00:20):
This is the high end of what we were expecting,
a he incertainly is.

Speaker 2 (00:23):
I mean, it's thirty point eight times four year twenty
five earnings, so it's a pretty good price, and I
just I suppose it reflects the demand for these sort
of assets. So, look, it had been well flagged that
this devestment was being considered, and it was sort of
really something that Spark had to do. There'd been a
lot of focus on their debt levels, on protecting the dividend,

(00:45):
and the reality is building up these data center is expensive,
so they were going to need to spend a billion
dollars on the data center roll out. So it's a
good outcome, it's a good price. They can pay down
some debt they can keep some skin in the game,
and of course they getting this out of the way
before the four year results next week.

Speaker 1 (01:02):
Yeah, and they're obviously using some of the money to
pay the dividends. Should they be paying dividends at the moment.

Speaker 2 (01:07):
Though, yeah, I mean that's been the question. So you know,
they've effect had been paying dividends that they actually can't
really afford to. So this is going to change things
a bit. You know, this business is being separate into
a new standalone company. So we are expecting, with the
sort of clarity that we've got now, some sort of
dividend cut next week. So the current divind to give

(01:29):
you an idea, is around about twenty five cents per share.
That's expected to go down to around eighteen the current
share price. That's still a pretty good yield. Yeah, six
to sort of seven percent. So obviously investors haven't liked
the result today today will be the announcement today, so much
shares down two and a half percent. But I think,
you know, it is sort of that fact that now
we are going to be facing a cut in the

(01:51):
dividend announced next week, and the question will be whether
it's the final dividend or the dividend for the sort
of the fourthcoming year. We know the pressure that Sparks under.
Business spend has been under the pump given the economy,
government spending has been pressurized. So I think what'd be
really interesting as well is whether there's any sort of
green shoots in that outlook. And yeah, I suppose that's

(02:12):
what investors will perhaps be clinging to.

Speaker 1 (02:14):
Now there's been a fair bit of talk about the leadership,
board leadership, executive c suite leadership as well. What do
you reckon is going to change here?

Speaker 2 (02:23):
Well, I think for the moment that's probably you know,
I think the benefit of the doubt is going to
be given to the current current leadership. But yeah, Sparks problems,
you know are Yeah, a lot of it's been about
it out of its control when you look at what
the economy has been heavily pressurized. So they're certainly not
alone there. There have been here some questions over you know,

(02:45):
what they're going to be doing with various assets. We
now have some certainty there around the data centers, so
I think there will be an element of benefit of
the doubt, And yeah, what investors are really looking for
some sort of signs that things can turn around. I
think yeah, for a long time, your sparks sort of
been out of its depth in terms of you know,
I suppose the checks has sort of been going one way,

(03:06):
and now you know that obviously now got that going
the other way. This data center sales, so it's going
to pay down debt, it's going to make the balance
sheet in this in better shape. That's going to be
good in terms of the credit rating. Agencies are going
to maintain that a minus rating. They're going to say
protect the dividend to an extent that it's probably coming down,
and I think there will be some benefit of the
doubt given for the company to sort of get through

(03:27):
and hopefully have a better sort of six to twelve
months ahead.

Speaker 1 (03:30):
Brilliant stuff. I really appreciate it. Appreciate your expertise, he agreed.
That's Greg Smith, Devin Fund's head of retail.

Speaker 2 (03:36):
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