New Zealand Urban Growth And Fiber Expansion Will Boost Demand

Key Takeaways

• Scalable fiber network and new product offerings position Chorus for revenue and margin growth as digital infrastructure demand surges.
  
• Regulatory environment is easing, supporting earnings stability and enhancing investor confidence.
  
• Sluggish fiber uptake, rising competition, regulatory pressures, and high costs threaten Chorus's revenue growth, margin expansion, and long-term dividend sustainability.

Catalysts

Engages in the provision of fixed line communications infrastructure services in New Zealand.

• Telecom and digital infrastructure demand is expected to accelerate as AI, cloud computing, and remote work drive exponential data usage; Chorus' scalable fiber network is positioned to capture higher ARPU and ongoing revenue growth as its technology becomes increasingly indispensable for businesses and households.
  
• Ongoing urban development and population growth in New Zealand's urban centers are forecast to drive consistent uptake of Chorus' fiber connections, expanding the addressable market and supporting long-term revenue and EBITDA growth.
  
• The transition from copper to fiber networks is ahead of schedule, resulting in declining maintenance costs, reduced capital expenditure, and improved net margins; copper retirement also unlocks valuable asset recycling opportunities, with copper extraction alone estimated to deliver a $30–$50 million net benefit over the next 3–7 years, supporting cash flow and profitability.
  
• Regulatory risk appears to be easing, with the Commerce Commission recommending deregulation of copper services and a broader review underway that could lead to a simplified regime and greater earnings visibility; these trends support improved investor confidence and potential for more stable forward earnings.
  
• Monetization of Chorus' excess fiber capacity and new wholesale products (like expanded data center connectivity and smart infrastructure solutions) are driving incremental revenue streams and margin expansion, supported by broader national endorsements for fiber expansion-positioning Chorus to benefit directly from surging demand for broadband infrastructure linked to emerging technologies and digital lifestyles.

Chorus Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Chorus's revenue will grow by 3.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.4% today to 10.3% in 3 years time.
• Analysts expect earnings to reach NZ$114.7 million (and earnings per share of NZ$0.23) by about September 2028, up from NZ$4.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting NZ$166 million in earnings, and the most bearish expecting NZ$55.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 51.4x on those 2028 earnings, down from 1070.6x today. This future PE is lower than the current PE for the NZ Telecom industry at 536.8x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.9%, as per the Simply Wall St company report.

Chorus Future Earnings Per Share Growth

Risks

• Ongoing shift of some customers to alternative technologies (such as fixed wireless and satellite, particularly in rural or price-sensitive segments) suggests that not all legacy copper connections are migrating to Chorus fiber-posing a risk of stagnating or even declining net connection growth, which could hamper long-term revenue and market share expansion.
  
• Chorus is increasingly reliant on capturing winback from a finite pool of already-passed but unconnected premises (200,000+), yet recent trends indicate limited net progress outside of new builds and legacy migrations-raising concerns that without accelerated uptake, long-term fiber penetration targets may be at risk, constraining both future revenue growth and margin expansion.
  
• Chorus's revenue and pricing flexibility remain constrained by tight regulatory frameworks and annual cap approvals, while the company anticipates further regulatory reviews and the potential deregulation of copper-but any adverse regulatory developments or future downward resets could compress margins and create uncertainty for long-term earnings.
  
• Management's optimism is heavily tied to the technological superiority of fiber, but persistent or growing price sensitivity in the market (with customers potentially preferring lower-cost fixed wireless despite lower performance) could put pressure on ARPU and limit ability to raise prices, leading to revenue headwinds and net margin compression.
  
• High ongoing fixed costs, continuing capital expenditure for maintaining and optimizing the network, and required copper retirement expenses mean that if organic fiber uptake or activation rates underwhelm, Chorus could experience elevated leverage and weaker free cash flow conversion, ultimately constraining dividend growth or payout sustainability.

Valuation

• The analysts have a consensus price target of NZ$9.093 for Chorus based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NZ$9.95, and the most bearish reporting a price target of just NZ$8.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NZ$1.1 billion, earnings will come to NZ$114.7 million, and it would be trading on a PE ratio of 51.4x, assuming you use a discount rate of 6.9%.
• Given the current share price of NZ$9.87, the analyst price target of NZ$9.09 is 8.5% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.