This election New Zealanders will vote on whether or not to legalise recreational cannabis use. Video / NZ Herald
The rise and rise of medicinal cannabis company Cannasouth has more than a few people scratching their heads.
The Waikato-based Cannasouth told the NZX a fortnight ago that it was not in possession of any information in response to a "please explain" inquiry from the exchange regarding its buoyant shareprice, which was then at 79c.
The company said it had not breached any disclosure requirements, and the stock has since gone ahead in leaps and bounds.
And even though medicinal cannabis is already legal, it seems as if Cannasouth may have also been caught up in the general debate about recreational cannabis, an issue that will go to the vote at the general election.
With the poll having been pushed out by a month to October 17, it means the discussion about cannabis will go on longer than people thought, which may have also acted to lift Cannasouth's profile.
The only trouble with that theory is that since its inception, Cannasouth has made it clear that its interests lie solely in the application of cannabis-based compounds for medicinal use.
"A lot of people don't realise that medicinal cannabis is actually legal now," said one source involved in the sector.
Cannasouth is also a stock that seems to appeal to individual investors - it already has 20,000 shareholders.
As well, it features prominently on some share trading platforms and appears to be favoured by retail investors who have emerged as a potent force on markets here and around the world so far this year.
And finally, it seems that with Auckland in level 3 lockdown for a fortnight, Cannasouth seems to appeal to those smaller investors with time on their hands, as was the case during the level 4 lockdown.
Spark dividend cut?
While Spark has decided to ease back on its ambition to sustain its 25c dividend, even with a cut the telco should still offer an attractive yield in a world looking for income, says broker Forsyth Barr.
The telco has now guided the market towards a dividend of 23–25cps in 2021.
"A dividend cut is no fait accompli," the broker says in a research note. "Spark has a strong track record on execution, consistently outperforming market expectation, and Covid-impacted revenue streams such as mobile roaming will bounce back once lockdowns end.
"Even with a cut, Spark should still offer an attractive yield in an income scarce world," said Forsyth Barr.
Funded by debt
Spark's dividend regime had been part-financed by bank debt.
"Spark's belief that a 25c dividend was sustainable in the long run was so strong that they decided to pay it years before they started to earn it, hence the $100 millions of bank debt," said Stephen Bennie, co-founder of Castle Point Funds.
Spark chief executive Jolie Hodson. Photo / Jason Oxenham
"However, the earnings trajectory started to fall short and cynics would no doubt reference last year's departure of Simon Moutter as a further indication that earnings were not in fact destined to cover the 25c dividend as planned."
S&P backing
S&P Global said it would be hard for Spark to maintain its dividend, despite the agency's view that the company was resilient to the operational and financial disruptions caused by Covid-19.
"In our opinion, partial debt funding of Spark's dividend has become unsustainable.
"To this end, we view the company's adoption of a dividend guidance range of 23 to 25 cents per share as appropriate in light of the increased uncertainty and upcoming spectrum renewal," it said.
The company has maintained the 25 cents per share payout since the year ended June 30, 2016.
For the year to June 30, Spark's net profit increased 4.4 per cent to $427m, ebitdai gained 2.1 per cent to $1.13 billion and revenue was up to 2.5 per cent to $3.62b.
