Chorus Limited

The Business

Chorus is New Zealand's wholesale fibre network operator, selling capacity to retail providers rather than to consumers directly. Fibre connections generated $792 million of FY26's $1,029 million revenue, with the remainder coming from a shrinking legacy copper network, point-to-point data links, and infrastructure services. There is effectively one fibre network in most of New Zealand, and Chorus owns it. Revenue is set under a regulated framework administered by the Commerce Commission, which caps allowed returns but also guarantees them, removing much of the demand and pricing risk a typical infrastructure business faces.

Recent Performance

Revenue grew 1.5% in FY26 to $1,029 million, up from 0.4% growth in FY25, as fibre connection growth offset the accelerating decline of copper revenue. EBITDA margin expanded to 70.6% from 69.5%, helped by the retiring copper network shedding maintenance costs faster than it sheds revenue. The stock's re-rating has tracked broader moves in interest rate expectations more than operational news, consistent with a company whose earnings are stable but whose equity value is not.

Outlook

Revenue growth is expected to hold near 2.5% annually over the next few years, as fibre uptake pushes toward 78-80% of premises and copper revenue approaches zero. EBITDA margin should continue expanding modestly as copper-related costs fully exit the business, though this is a structural tailwind with a defined end point rather than a permanent one. Beyond that, a regulatory reset due to take effect in January 2029 introduces genuine uncertainty over the allowed return the Commerce Commission will permit for the next regulatory period, with material implications either way for earnings durability.

Key Risks

The regulatory reset taking effect in January 2029 is the single largest risk to the investment case. A meaningful cut to the allowed regulatory return would compress earnings and sits largely outside management's control; the Commerce Commission's draft decisions around mid-2027 will be the first real signal of direction. Sustained elevated interest rates present a related pressure, since Chorus finances roughly half its capital structure with debt and hedges only part of that exposure at fixed rates. The combination matters because Chorus carries a heavy debt load relative to its earnings: against that leverage, even a moderate decline in earnings can produce a considerably larger decline in equity value, a structural feature of the balance sheet rather than a sign of deteriorating fundamentals.

What to Watch

The thesis-defining event is the Commerce Commission's draft regulatory decisions around mid-2027, which will signal whether the next regulatory period is likely to be constructive or punitive for allowed returns.

• Mid-2027 Commerce Commission RP3 draft decisions — early signal on whether the regulated return will hold near current levels or compress.
• Nov 2026 Ownership cap removal vote — if approved, could attract strategic buyer interest.

Company Description

Chorus builds, maintains and sells access to New Zealand's wholesale fibre network. Fibre connections are the core of the business, contributing around 77% of FY26 revenue. A legacy copper network, now being wound down, still generates a small and rapidly shrinking share of revenue. Point-to-point data links serving large enterprise and government customers add a stable, low-growth revenue stream. Field services and infrastructure leasing, including emerging data centre connectivity, round out the business. Retail service providers like Spark and Vodafone sell fibre plans to households using Chorus's network; Chorus never deals with the end consumer directly.

Where the Growth Is

Fibre connections are the growth engine, contributing roughly 77% of group revenue in FY26. Growth is decelerating from around 5.3% to a steadier 3.0% as household uptake approaches saturation near 80%. The more immediate margin driver is the retirement of the copper network: as copper connections fall toward zero by FY29, the maintenance costs tied to that ageing infrastructure disappear faster than the revenue it still generates, providing a meaningful, though time-limited, tailwind to EBITDA margin over the next few years.

Competitive Position

Chorus controls 75% of New Zealand's fibre footprint, built at a cost that makes a rival network commercially irrational to construct. This is not a market share that is being won through service or price; it is a physical and regulatory barrier. The Commerce Commission's regulated revenue framework caps what Chorus can earn but also protects it from being undercut, since no competitor can replicate the sunk capital investment in the network. The one credible substitute, fixed wireless broadband using mobile networks, currently holds only around 12% consumer preference, a figure that would need to rise well above 20% to meaningfully threaten fibre uptake. This competitive position is unlikely to erode within the next decade.

Management & Capital Discipline

Management has directed the large majority of free cash flow toward dividends, with a payout ratio around 70-73% of free cash flow, while avoiding value-destructive acquisitions. The original fibre network build was completed on schedule, and near-term earnings guidance has been consistently met. One notable gap: management has offered little public detail on how it is preparing for the 2029 regulatory reset, despite this being the single largest risk to the investment case. Insider ownership is minimal at roughly 0.05% of shares, meaning management's personal financial exposure to the stock is limited.

Financial Position

Chorus carries a heavy debt load relative to its earnings, financing roughly half of its capital structure with debt, hybrid securities and government funding tied to the original fibre build. Around 65% of debt is hedged at fixed rates, and an undrawn NZ$450 million facility provides liquidity headroom. The regulated, highly predictable nature of revenue makes this leverage manageable in normal conditions, but it also means the company has less capacity to absorb a genuinely adverse shock than its stable earnings profile alone would suggest.