State may want to cash in on Telkom’s spurt

Does anyone in the finance ministry keep an eye on the stock market? Because if they do, they may have noticed one of this year’s sleeper success stories: Telkom.

As this paper reported on Tuesday, Telkom shares have rallied to their best levels since June 2017, quite out of keeping with their listed peers Vodacom, MTN and Blue Label, which owns mobile operator Cell C.

While Telkom has rallied a steamy 29%, MTN has gained almost 13%, but Vodacom has dropped 11% and Blue Label has lost more than a third of its value.

For the most part, this is as perplexing as it is pleasing to Telkom shareholders, given the absence of any real reason behind the move.

MTN and Vodacom, for example, are the dominant players in the mobile telecoms sphere and both dwarf Telkom in terms of size and profitability, MTN’s woes in Nigeria notwithstanding. Both continue to show growth in subscriber numbers and profitability.

Telkom, on the other hand, posted a slight dip in headline earnings for the six months ended September, and still has the headache of having to grow revenue and income streams away from its declining fixed-line business, which still accounts for the bulk of its sales. It makes little sense that Telkom has enjoyed such a tear, but a nimble state might now wish to seize the opportunity presented by this surprise rally and cash in. The government owns 40.5% of Telkom. At Tuesday’s close, that was worth R16.7bn.

After all, discipline in the stock market is as much knowing when to sell as when to buy.

NU-WORLD

Consumer goods manufacturer and distributor Nu-World Holdings remains one of the star graduates from the wild and woolly listings class of 1987.

Investors would be hard pressed to find a truly dreadful year in the group’s tenure of

more than three decades on the JSE.

The most successful listings from the late 80s listings boom

which include Spur, Combined Motor Holdings, Bowler Metcalf and Italtile had a handful of things in common: conservative (and stable management, a singular focus on operations, an austere corporate culture and a reluctance to chase acquisitions that might strain the balance sheet or stretch management.

Nu-World’s “lean and mean” operational style is clearly evident in the latest interim results to end February, where a 2% increase in turnover was transformed into an 11% after-tax profit gain.

Of course (as is the case with small cap companies these days), the commendable operating performances have largely gone unnoticed by the market with Nu-World trading on a desultory earnings multiple of less than five times with a yield of close on 8%.

In the interim period, the quality of the group’s earnings was highlighted with the 435c/share headline earnings backed by some reassuring cash conversion.

At a strategic level, it was encouraging to see Nu-World managing to grow its offshore components to R432m (previously R395m) without sacrificing margins to increase its foothold in places such as Australia, India, Pakistan, Sri Lanka, the Middle East and Brazil). The offshore margin of about 8% is now markedly higher than the 4.5% eked out locally.