Chorus share price falls despite positive Moody's note

The Chorus Ltd (ASX: CNU) share price has fallen lower this morning despite credit rating agency Moody's releasing a broadly positive research update on the company.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Chorus Ltd (ASX: CNU) share price has fallen lower this morning despite credit rating agency Moody's releasing a broadly positive research update on the New Zealand telco.

What was in the Moody's update?

Moody's Investor Services said Chorus' long-term rating remains unchanged at Baa2 with a 'Stable' outlook and therefore still in the investment-grade category.

The update states that Moody's expects to revise Chorus' current financial leverage tolerance threshold in 2021, following the Commerce  Commission's final determination on the fibre price path for Chorus.

This reflects Moody's expectation of declining capital spending on the company's UFB project, reducing cash outflows and execution risks to place Chorus' risk profile more in line with other regulated utilities.

Moody's consider Vector the most comparable rated peer for Chorus, but note that Chorus' greater competition and technology risk suggest a tighter leverage tolerance threshold.

What does this mean for the Chorus share price?

The Chorus share price has dipped 0.4% this morning, however, this may have a lot to do with the S&P/ASX 200 (INDEXASX: XJO) index falling 1.5% so far in today's trade.

While the Moody's update is broadly positive and notes several credit positives for Chorus, that doesn't necessarily translate into further upside for equity holders.

While items such as greater capitalisation and increasing balance sheet strength can protect bondholders, it can also tie up a lot of Chorus capital that could otherwise be spent on value-add investments or reinvestment in the business.

How has the Chorus share price performed?

The Chorus share price has surged 18.1% so far this year but still trails the ASX 200's year to date performance, as well as the performance of many of its peers.

The Chorus share price closed lower following its most recent quarterly update after the New Zealand telco saw fibre connections grow to 50% of the company's total broadband connections.

Total broadband connections grew by 5,000 to 1.196 million, led by demand for 1 Gbps, with an increase of 8,000 connections on March 2019 numbers to 58,000 connections.

Overall, Chorus has been a solid performer in the telco sector but I still prefer Telstra Corporation Ltd (ASX: TLS) shares at the moment as they continue to rebound in the second half of the year.

Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

A smiling businessman in the city looks at his phone and punches the air in celebration of good news.
Broker Notes

These ASX 200 shares could rise 50% to 60%

Brokers believe these shares could deliver big returns for investors.

Read more »

A girl is handed an oversized ice cream cone with lots of different flavours.
Best Shares

8 ASX All Ords shares that tripled in value in FY25

Just 8 out of the 500 companies making up the ASX All Ords achieved share price growth of 200% or…

Read more »

Broker written in white with a man drawing a yellow underline.
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

Woman with a scared look has hands on her face.
Broker Notes

Bapcor shares fell more than 30% yesterday. Should investors buy in the dip?

Is this a value opportunity?

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Broker Notes

Broker raises price targets on 2 ASX 200 shares to buy

Ord Minnett has just upped its 12-month share price targets on 2 buy-rated ASX 200 stocks.

Read more »

Man with rocket wings which have flames coming out of them.
Share Gainers

Guess which ASX All Ords stock just rocketed 34% on strong earnings growth

Investors just sent this ASX All Ords stock surging 34%. Here’s what’s happening.

Read more »

A male investor wearing a blue shirt looks off to the side with a miffed look on his face as the share price declines.
Share Fallers

Why DroneShield, Gentrack, Metals X, and Northern Star shares are tumbling today

These shares are ending the week in the red. But why?

Read more »

A businessman looking at his digital tablet or strategy planning in hotel conference lobby. He is happy at achieving financial goals.
Share Gainers

Why Dimerix, Newmont, Regal Partners, and Titomic shares are storming higher

These shares are having a good finish to the week. Let's see why.

Read more »