Chorus Limited

Team Veye | 12 Mar 2020 ASX - CNU
Chorus Limited
Call Buy
Investment Duration Long Term
Asx CNU
sector Services

Chorus Limited (ASX: CNU) (Chorus) is a telecommunications infrastructure company. The Company maintains and builds a network made up of local telephone exchanges, cabinets, and copper and fiber cables. The Company’s product portfolio encompasses a range of wholesale broadband, data and voice services across a mix of regulated, contracted, and commercial products. Its products include fiber broadband, fiber premium, copper-based voice, data services over copper and copper-based broadband. Its fiber and copper connections provide access to the Chorus fixed lines network to enable connections to the Internet. Its infrastructure includes the physical storage and site-sharing rental services for the co-location of the third party or shared assets. The Company’s field services include services in the field to protect, strengthen, and increase the available network. (Profile source: Reuters)

 

From the Company Reports

Chorus 2020 half-year result

Chorus increases EBITDA guidance following strong half

Chorus Limited (ASX: CNU) (Chorus) on 24 February 2020 reported a net profit after tax (NPAT) of $31m and earnings before interest, tax, depreciation and amortisation (EBITDA) of $332m for the half year ending 31 December 2019. The growth in EBITDA was achieved through a combination of operating cost reductions and strong broadband connections growth.

(Graphic Source – Company Reports)

FY20 half year result by the numbers 

  • Net profit after tax $31m (HY19: $30m) 
  • EBITDA $332m (HY19: $318m) 
  • Operating revenue of $483m (HY19: $489m) 
  • Interim dividend of 10 cents per share 
  • EBITDA guidance range increased to $640 to $655 million 
  • 99,000 fibre installations since 30 June 2019 
  • 13% of fibre connections on 1 gigabit plans

 

Operating revenue for the period was $483m (HY19: $489m) and operating expenses were $151m (HY19: $171m).

Depreciation and amortisation for the period were $198m (HY19: $196m), delivering earnings before interest and tax (EBIT) of $134m (HY19: $122m).

Chorus’ fibre build draws to a close

Chorus CEO JB Rousselot said that last year’s completion of the first phase of the Ultra-Fast Broadband (UFB) rollout marked the beginning of the wind-down of Chorus’ communal fibre build programme.

In November Chorus celebrated the completion of its nine-year contract with the Government in bringing fibre to 28 towns and cities. The contract was delivered on-time and on-budget and was a textbook case study of how a public-private partnership could work well in delivering a cost-effective outcome for taxpayers.

(Graphic Source – Company Reports)

The second phase of its fibre build, UFB2, was already about 40 percent complete and there were now just 150,000 premises remaining to be passed by December 2022.

Connecting to fibre remains the focus

With fibre now available to about 1.2 million homes and businesses in Chorus build areas, Chorus’ focus remained firmly on connecting as many customers as possible. Simple residential fibre installations were currently free.

The number of disconnections from its fixed line network slowed markedly in the first six months. However, mobile network operators continue promoting their own fixed wireless services as an alternative, and Chorus remains concerned that ‘the pending shutdown of copper’ is still incorrectly cited to customers as a reason to move.

Gigabit fibre becoming the norm

In January the average household data usage on Chorus’ fibre network was 372 gigabytes, up from 342 in June. Customers were increasingly conscious of the limitations of broadband plans with capped data allowances.

With streaming services like Disney+ increasingly making ultra-high definition, or 4K, content available to customers at no additional cost and online gaming without a console or downloads on the horizon, it expects bandwidth demand to step up yet again.

(Graphic Source – Company Reports)

Chorus’ market-led focus on encouraging the uptake of gigabit broadband plans is changing the perception of what stress-free broadband looks like. Now everyone can be streaming online TV simultaneously without the worry of buffering or a data cap being breached.

Already 13 percent of its fibre customers – up three percentage points in the last six months – have opted for a gigabit plan. Comparison sites, like broadbandcompare.co.nz, are highlighting providers who now offer gigabit plans at prices comparable to earlier 100Mbps plans.

In November, Chorus ushered in a new era of high-capacity fibre broadband set to meet the future demands of New Zealand’s creativity, innovation and efficiency.

Outlook

With the UFB rollout coming to an end, Chorus will be doing even more to encourage fibre uptake. The progress on optimising its business and reducing costs, together with broadband connection performance, had given it the confidence to increase FY20 EBITDA guidance to a new range of $640 million to $655 million, from a prior range of $625 million to $645 million.

Reducing capital expenditure requirements and the strong first half mean it has decided to remove the discount previously offered on the dividend reinvestment plan.

Dividend guidance for FY20 is unchanged at 24 cents per share, subject to no material adverse changes in circumstances or outlook.

(Chart source: TradingView)

The Board said it recognised that investors have had constrained returns through the decade long fibre investment cycle and, from FY22 expects to transition to a dividend policy based on a pay-out range of free cash flow.

FY20 guidance

  • EBITDA guidance range increased to $640 - $655 million 
  • Gross capex guidance unchanged at $660 - $700 million 
  • Fibre connections & layer 2 capex increased to $295 - $315 million

 

Financials

The company currently offers an annual dividend yield of 3.27%. The company has a P/E ratio of 58.7. The EPS stands at $0.0115. The stock has a market cap of $3 billion and a Share volume of 443.71 million. The stock has a 52-week price range of $4.54-$7.36 (Data Source – Company Reports).

 

Veye’s Take

Chorus increased EBITDA guidance following a strong half result. It had a Net profit after tax of $31m (HY19: $30m) and EBITDA $332m (HY19: $318m). With fibre now available to about 1.2 million homes and businesses in Chorus build areas, Chorus’ focus remains firmly on connecting as many customers as possible. The number of disconnections from its fixed-line network slowed markedly in the first six months. The average household data usage on Chorus’ fibre network is increasing. In view of streaming services like Disney+ increasingly making ultra-high definition content available to customers at no additional cost and online gaming without a console or downloads on the horizon, Chorus expects bandwidth demand to step up yet again. Already 13 percent of its fibre customers – up three percentage points in the last six months – have opted for a gigabit plan. The stock has been moving in an ascending channel. It has two strong supports nearby at $6.70 and $6.40. We expect the stock to give very good returns. Veye recommends a "Buy" on “Chorus Limited” at the current price of $6.47

 

 


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