State’s hold on Telkom batters share price
Investors off-load stock as MTN spurns operator
UNHAPPY investors battered Telkom’s share price this week as they off-loaded stock, sending the price down more than 7%, after the government reaffirmed its tight control over Telkom and MTN said it was not keen on snapping up the equity.
The state owns a formidable 53% of the fixed-line services operator through its direct stake of 39.67% and a 13.25% holding through its asset manager, the Public Investment Corporation.
Analysts say investors were disappointed after Sifiso Dabengwa, the CEO of MTN Group, the largest telecoms company on the continent, said last week: “A deal won’t happen unless something changes significantly.”
Philip Short, investment analyst at Old Mutual Equities said: “These changes are inferred to mean government giving up control of Telkom.
“And the government recently said that Telkom was strategic . . . and that it would not give up control.”
The government has recently appointed Telkom to roll-out high-speed broadband nationwide in a developmental project that is estimated to cost R98billion, some of which is expected to come from the listed Telkom’s infrastructure budget.
Telkom investors who drove the share price up to over R80 recently decided this week that their money would be better deployed elsewhere.
On Monday, Telkom shed 7.3% — the most significant slide since 2012 — to close the session on R69.85.
Since March 3, the shares had dropped almost one-fifth in a week, declining 18% or so by Tuesday this week and wiping out gains for the year. But the stock recovered 2.4% to R71 on Wednesday, valuing the company at R37-billion, according to data compiled by Bloomberg.
The firm listed on the JSE at R28 in 2003 and at its peak, in 2007, touched R84.46.
Not all spectators — including the DA, which has accused Telkom of insider trading— are convinced that the meteoric rise of the share price is because the market regards it as a good investment choice.
Sasha Naryshkine, a director at securities firm Vestact, said Telkom’s old core business was shrinking fast, as more than 50% of its revenues were derived from fixed-line voice services. This revenue stream has declined around 5% annually over the past three years.
“It is anticipated to continue to decline, although at a slower rate” as consumers choose mobile over fixed-line, call termination rates fall and voice calls over internet grow.
Telkom is lagging in the mobile market.
If the telecoms industry regulator’s plans to implement local loop unbundling succeed, Telkom’s ability to service rural areas and to fund its next-generation network roll-out would be undermined. The unbundling will give Telkom competitors access to the last mile of its network to its customers.
On the data front, Naryshkine said: “The core market that Telkom is trying to penetrate is consuming data via MTN and Vodacom.
“How is it possible that Telkom can tackle these two when Cell C has been in this market for years and [has been] barely profitable over that period, having invested large amounts in its infrastructure?”
Telkom CEO Sipho Maseko was appointed two years ago and immediately impaired legacy assets to reset Telkom’s base and enable it to compete effectively.
He has also launched a plan to cut R1-billion in costs annually — through retrenchments and outsourcing of functions — over five years and is pursuing a high-speed internet roll-out to households to improve revenue streams.
Short said Maseko and the new Telkom board under businessman Jabu Mabuza had created stability and a forwardlooking strategy for Telkom, “which was not present or not articulated well under previous management”.