Telkom no longer on ‘chopping block’
• Analysts say this may lead to positive rerating of group • State no longer hard-pressed to sell
Telkom shareholders could be the next beneficiaries of President Cyril Ramaphosa’s “new dawn”, as an improving economic outlook means the state is no longer hard pressed to sell strategic assets.
Telkom CEO Sipho Maseko said on Monday that the government was no longer actively looking to offload some or all of its shares in the partially state-owned telecommunications company.
Analysts said the news could lead to a positive rerating of the company’s share price and that it could be construed as another sign that the worst may be over for the South African economy.
Talks about a partial share sale, which Telkom first warned shareholders about in August 2017, came as the government was searching for funds to prop up ailing national carrier South African Airways.
The state directly owns 40.5% of Telkom, while the Government Employees Pension Fund holds another 11.8%, according to Bloomberg data.
Maseko said talks about a share sale had started at a time when SA was facing a ratings downgrade, the economy was flagging and “the fiscal position was really under pressure”.
“But since the budget speech, there’s an improved revenue position. I think the government is looking at how they can manage costs and, certainly, the economy is a bit more positive, so I don’t think [Telkom] is that much of a priority anymore. We are no longer up there on the chopping block,” he said.
“I’m only looking for certainty. Having government as a stable shareholder … I’m always looking for long-term stable shareholders and people who will buy the story of the company and commit their
capital for the long term,” Maseko said.
Under Ramaphosa, the government had been “very quiet” about divesting its shares, although it was not impossible that a sale could be put back on the agenda at a later stage.
Divestment talks had dented Telkom’s share price, according to Mergence Investment Managers portfolio manager Peter Takaendesa. “Why would you buy Telkom shares? You’d rather just wait for the government to sell you their shares at a discount,” he said.
Since the end of August 2017, Telkom’s share price has slipped nearly 18% to R51.70 on Monday.
During that time, the South African Revenue Service changed its leadership and found alternative sources of revenue. In the 2017-18 financial year, the revenue service collected R1.217-trillion, an increase of 6.3%.
While that was marginally below February’s budget estimate, it was not as bad as it might have been had revenue growth not jumped sharply following the ANC’s elective conference in December.
The government is targeting 10.5% revenue growth in 2018. It will raise additional revenue after hiking the value-added tax rate and other taxes.
Meanwhile, Takaendesa said Telkom’s earnings for the year to end-March came in better than the market had expected, thanks to a strong second half, though a less generous dividend saw shares fall 3.6% on Monday. Earnings before interest, taxes, depreciation and amortisation dropped 3.6% to R10.5bn, while the dividend was 16.3% lower at 355c a share.
“There seem to be some green shoots. Total revenue was down 0.6% in the first half and improved to 0.8% up in the second half, and they managed to grow fixed data revenues about 4% in the second half after a decline in the first half.”
Takaendesa said it was encouraging that Telkom’s new business units including fibre and mobile, were starting to gain traction. “Over time, fixed data should offset the decline in fixed-line voice, then you should have a better story for them,” he said.
Maseko said Telkom was “actively migrating customers from old technologies to new technologies”. He said that “if you look at the fixed-voice decline against mobile growth, for the first time our mobile growth was big enough to offset the decline in fixed voice. It’s a big psychological milestone.”