Chorus Limited (CNU)

By Jason Fittler

Chorus is the largest telecommunications utility in New Zealand.

It is a national owner operator of fixed line access, network infrastructure, including local telephone exchanges, copper and fibre cable. Its assets are near monopolies, providing voice and fixed broadband services to 90% of the market. As such, wholesale pricing is regulated.

Chorus is partnering with the Government in the roll out of New Zealand’s ultra fast broadband fibre project network.

They are on track to hit their 2013 rollout target of 149,000 premises.

The 2013 half year resulted has two main negative’s.

First, the capital expenditure was revised 20% higher to a range of NZD 640 million to NZD 690 million. This is attributable to higher connection costs and the rollout to a number of premises being brought forward.

The Second negative is the decision by the New Zealand Commerce Commission to lower the copper based broadband prices which creates a disincentive for users to take up the higher cost fibre based product.  The future of the company depends on the demand for fibre.

The major success of the fibre roll out will depend on the government departments and public service agencies underpinning initial demand. As such between 2012 and 2015, fibre will be delivered with a focus on priority customers including hospitals, schools and business premises.

The deadline of the project completion is 31 December 2019. The increase demand for data will be a major push of the product in the future.

Wireless networks are considered a complement to fibre with wireless providing portability and fibre providing speed.

Forecast dividend are expected to remain at $0.20 per share for the next three years and although there will be increase sales expected as the fibre is rolled out the company will continue to need to borrow for capital expenditure.

At present, the dividend is not fully funded from cash flow due to the expected capex demands.

However, this is a long-term story in what will essentially be a monopoly company supported by the government. Much like the early years of Telstra. 

This is a long-term yield play investment for those focused on income. 

For more information on Chorus Limited (CNU) please contact us on 07 4771 4577.