Spark New Zealand (NZSE:SPK) has had a rough week with its share price down 7.4%. It is possible that the markets have ignored the company’s differing financials and decided to lean-in to the negative sentiment. Long-term fundamentals are usually what drive market outcomes, so it’s worth paying close attention. In this article, we decided to focus on Spark New Zealand’s ROE.
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Put another way, it reveals the company’s success at turning shareholder investments into profits.
The formula for return on equity is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the above formula, the ROE for Spark New Zealand is:
17% = NZ$252m ÷ NZ$1.5b (Based on the trailing twelve months to June 2025).
The ‘return’ is the income the business earned over the last year. That means that for every NZ$1 worth of shareholders’ equity, the company generated NZ$0.17 in profit.
Check out our latest analysis for Spark New Zealand
We have already established that ROE serves as an efficient profit-generating gauge for a company’s future earnings. We now need to evaluate how much profit the company reinvests or “retains” for future growth which then gives us an idea about the growth potential of the company. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.
To start with, Spark New Zealand’s ROE looks acceptable. Especially when compared to the industry average of 3.4% the company’s ROE looks pretty impressive. Given the circumstances, we can’t help but wonder why Spark New Zealand saw little to no growth in the past five years. Therefore, there could be some other aspects that could potentially be preventing the company from growing. These include low earnings retention or poor allocation of capital.
Next, on comparing with the industry net income growth, we found that the industry grew its earnings by 6.8% over the last few years.
Story Continues
NZSE:SPK Past Earnings Growth September 13th 2025
Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. Is SPK fairly valued? This infographic on the company’s intrinsic value has everything you need to know.
Spark New Zealand has a three-year median payout ratio as high as 116% meaning that the company is paying a dividend which is beyond its means. This does go some way in explaining the negligible earnings growth seen by Spark New Zealand. Paying a dividend beyond their means is usually not viable over the long term. This is quite a risky position to be in. To know the 2 risks we have identified for Spark New Zealand visit our risks dashboard for free.
Additionally, Spark New Zealand has paid dividends over a period of at least ten years, which means that the company’s management is determined to pay dividends even if it means little to no earnings growth. Based on the latest analysts’ estimates, we found that the company’s future payout ratio over the next three years is expected to hold steady at 113%. However, Spark New Zealand’s ROE is predicted to rise to 22% despite there being no anticipated change in its payout ratio.
On the whole, we feel that the performance shown by Spark New Zealand can be open to many interpretations. While the company does have a high rate of return, its low earnings retention is probably what’s hampering its earnings growth. With that said, we studied the latest analyst forecasts and found that while the company has shrunk its earnings in the past, analysts expect its earnings to grow in the future. Are these analysts expectations based on the broad expectations for the industry, or on the company’s fundamentals? Click here to be taken to our analyst’s forecasts page for the company.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.