Spark Infrastructure (ASX: SKI) has recently via an ASX release provided the relevant updates on the Federal Court Decision on Tax Litigation, Asset Impairment and Change to Distribution Guidance. The snippet of the updates mentioned above are briefed below:
Federal Court decision on the tax treatment of capital contributions:
The honourable Court has decided that regarding the assets created by Victoria Power Networks (VPN) where the customer has contributed to the cost of construction of those assets, such cash contribution is to be considered as an assessable income for the purpose of taxation on the receipt of same. Also, the assets transferred to VPN from customers (i.e. gifted assets) should be treated as assessable income to VPN for tax purposes at their estimated construction value net of any rebates paid by VPN as part of the connection agreement.
Spark Infrastructure and VPN are reviewing this judgement. It has not yet been determined whether VPN will appeal against the Federal Court’s decision.
Spark Infrastructure expects to pay taxes in the near term. However, the timing and amount of tax payable will be dependent on the outcome of existing disputes with the Australian Taxation Office, among other things. Without any successful appeal on the above tax matters, the company will be paying the taxes from 2019 onwards.
In determining the carrying value of its investments, Spark Infrastructure considers a range of assumptions, several of which, including the Australian Energy Regulator’s Regulatory Tax Approach and the final Rate of Return Guideline released on 17 December 2018, have changed since the last carrying value assessment at 30 June 2018. Following the Federal Court’s decision last Thursday, these assumptions have been updated for the change in tax treatment for cash contributions and gifted assets, which may affect Spark No2 with tax payable from 2019 onwards.
Due to these various changes, SA Power Networks’ future recoverable amount has been evaluated and was found to be less than its carrying value. Hence, the company has announced that it expects to recognise a net impairment loss on its investment in SA Power Networks amounting to $270 million in its FY2018 results which is slated to be released on 26 February 2019.
Change to Distribution Guidance:
Spark Infrastructure’s revised cashflow forecasts including the impacts of the Federal Court decision indicates an acceleration in tax payable by Spark No2 and consequently a reduction in standalone cash at the Spark Infrastructure level available to fund distributions to Securityholders.
Subject to finalisation of the Spark Infrastructure FY2018 accounts, including auditor sign off and Board approval, Spark Infrastructure expects to reconfirm guidance for the final distribution for FY2018 of 8.0 cents per security (cps), i.e. a total of 16.0 cps for FY2018, and provide changed distribution guidance for FY2019 of at least 15.0 cps, subject to business conditions. This would represent a decrease of no more than 6.25% in distributions compared with FY2018.
Now, let us have a quick look at Spark Infrastructure Group’s stock performance and the return it has posted over the last few months. The stock is currently trading at a price of $2.35, trading down by 6.375% during the day with a market capitalisation of ~$4.22 Billion. The counter opened the day at $2.40, it touched a day’s high of $2.41 and touched the day’s low of $2.30 with a daily volume of 11,608,335. The stock has provided a YTD return of 15.67% & also posted returns of 8.66%, 10.09% & 8.66% over the past six months, three & one-months period respectively. It had a 52-week high price of $2.53 and touched 52 weeks low of $2.125, with an average volume of 4,220,542 approximately.
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