How will new service agreements with Downer and UCG benefit Chorus (NZX:CNU)?

Highlights 

• Chorus confirmed new service company contracts on 4 February.
• Chorus’ total fibre connections increased by 24K to 918K in Q2 FY22.
• S&P raised its downgrade threshold for Chorus to a debt to EBITDA ratio of 5.0x at the existing rating level.

Chorus Limited (NZX:CNU; ASX:CNU) is an NZ-based telecom infrastructure provider.

The Group confirmed new service company contracts with its current service providers, Downer and UCG, on 4 February 2022. New agreements have been signed for the buildup, preservation and connection to its copper and fibre network from April 2022 for at least 3 years.

Ventia will remain in control for the deal to complete the fibre rollout to nearly 40K premises. It will carry out the West Coast and Southland fibre network extensions and other projects.

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The new contracts will provide a stage for the constant simplification of Chorus’ business as it moves from building fibre networks to operating and maintaining broadband infrastructure. The establishment of areas and activity under the contracts is to make sure that its service company partners can function sustainably and enhance client knowledge.

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The Downer deal is for 3 years. UCG’s deal is for 7 years for all services in Auckland, Northland and the Waikato, and for 3 years for fibre connect elsewhere in NZ. Costs of new services stayed in line with the Company’s business plan.

Q2FY22 performance

Chorus’ total fibre connections increased by 24K to 918K in Q2 FY22. This was despite COVID-19 effects of alert levels on the Company’s mitigation programme and the second quarter being a softer phase for demand.

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CNU’s fibre uptake across the completed UFB footprint increased from 66% to 67% in the quarter. The uptake moved to 72% in UFB1 areas and 46% in UFB2 areas in the quarter, up by 1% and 2% on pcp, respectively.

The fibre rollout was completed in Russell, Mahurangi, Fairlie and Duvauchelle. Chorus also completed its biggest upgrade for its Kiwi fibre clients in December 2021 that will help NZ get an extraordinary ranking for fixed broadband connectivity.

S&P raises CNU’s downgrade threshold

S&P stated that the downgrade threshold for Chorus had been raised to a debt to EBITDA ratio of 5.0x at the existing rating level, compared to the previous ratio of 4.25x.

The long-term rating stayed unchanged at BBB stable.

On 17 February, CNU ended the trading session at $6.655, down 0.67% from its previous close.

Road ahead

Chorus has predicted that NZ could break into the global top 10 for the fastest broadband service by early 2022.