Telkom must use every cent to grow its market
Telkom doesn’t have an impressive track record when it comes to share repurchases. Between 2004 and 2008 it destroyed about R4bn of shareholder value when it spent R5.15bn repurchasing shares at what turned out to be peak prices. Since then it has opted to avoid this tactic, which tends to be of little value for long-term shareholders.
So Monday’s announcement that it splashed out R751m buying back 15.8-million shares from mid-November 2017 to mid-February 2018 may have been greeted with some trepidation by shareholders. The repurchased shares are equivalent to 3% of the company’s issued share capital.
The average price paid over the period was R47.90 a share, which is below the end-September net asset value of R53.73. Buying back shares at below net asset value is an improvement on the previous repurchase exercise when the share price of the repurchase was substantially more than net asset value.
This time it makes a bit more sense but not a huge amount.
Share repurchases might be useful for companies that are cash rich and in a dying industry but Telkom isn’t cash rich and it’s not in a dying industry. It should be using every cent it has to grow its market, which means investing in necessary infrastructure. It has made impressive strides since the share price was languishing around R15 in early 2013, but it is still far from champion status.
As the repurchased shares are being delisted the repurchase will provide a once-off lift to the earnings per share figure, which is likely to make any executives with share options a little richer.
Meanwhile, there is no sign of the proposed disposal of part of the government’s Telkom stake to help bail out South African Airways.
Emira Property Fund should do more than dip its toes in the world’s largest commercial real estate market, the US.
The country is growing steadily across the board with notable job creation in less affluent states, such as Missouri and Oklahoma. The US economy grew 2.3% in 2017, much higher than the 1.5% rate at which it expanded in 2016. The IMF has forecast it will grow 2.7% in 2018.
Towards the end of 2017, Emira spent about R330m on stakes in three groceryanchored convenience shopping centres in Texas and Ohio. But this barely moves the dial for Emira, which has South African assets worth R12.6bn.
CEO Geoff Jennett has for a couple of years said he wants to invest a substantial amount of capital abroad, but he and his team have struggled to find a suitable investment destination. After failing to get on the east European property bandwagon, where South African real estate investment trusts spent billions in the past few years, he couldn’t find well-priced opportunities in the UK or Germany.
However, Jennett chose to try the US, the largest commercial real estate market in the world. If he can get this right, he will step out of the shadow of former CEO James Templeton.
Emira has partnered with two American companies and has a focus on middle American retail. These centres serve those who see a need for convenience and discounted apparel shopping and do not shop a lot online. The fund is considering making US exposure account for 10% of its assets by 2020. This could reach 20% by, say 2023, if it is hungry for more risk.