How low can Telkom share price go?
THERE is an old trader’s adage that goes: “Never try to catch a falling knife.” In other words, when a company’s share price is plummeting, stay away or you risk getting hurt.
This sage advice was exemplified yesterday by yet another trading statement from Telkom, which sparked yet another thumping drop in the share price. According to the announcement, full-year headline earnings per share are likely to be down at least 20%. The roughly 3% drop that followed took the Telkom share price down to R14.25. So, just when some brave investors might have felt it was time for a bold value play, they got hit yet again.
It’s worth reflecting for a moment on that R14.25 share price.
It means the company has a market cap of R7.5bn, which is now 4.7% of the market cap of Vodacom, the company in which it once held a 50% stake. It’s not trading far off its record low of R13.70, and the share price is down about 40% over the past year.
That is spectacular value destruction. But Telkom generates revenue of about 40% that of Vodacom.
Even Telkom’s earnings before interest and tax are likely to come in at about an eighth of Vodacom’s. Yet its market valuation is barely a twentieth of Vodacom’s. The company screams “value”, yet few seem ready to take the plunge.
It’s been said before that Telkom’s new management has a mountain to climb. That mountain just got a little bigger. But conventional investment metrics mean little at this point. The key issue is that the government must stop pretending that its investment in Telkom serves some greater industrial purpose, and allow investors alone to determine the fate of the company. Until then, real investors, value or otherwise, will stay away.
WIND as a source of renewable energy is controversial, but it is starting to gain traction in SA nevertheless. Last Friday the first consignment of 16 turbines for a wind farm project at Cookhouse arrived at Port Elizabeth’s Coega port.
The idea is that Coega should not only develop infrastructure to serve the Eastern Cape, a province considered by some to be SA’s least developed, but also become a hub for new hi-tech industries. The turbines were built by Suzlon, an Indian company that signed a deal with Africa Energy Developments, a local company, in 2011 to supply 76 twomegawatt turbines. These are the first wind turbines under the Department of Energy’s renewable energy independent power producers procurement programme, which was announced in 2010.
A Swedish company, Universal Wind, is also bringing wind energy to the Eastern Cape. Up to 20 turbines will be built by Universal Wind, which is investing R850m in a project designed to generate 150MW a year. A third wind farm project has yet to be detailed. The aim is for the three projects to contribute 200MW to the grid by 2015.
Dave Marrs edits Company Comment (marrsd@bdfm.co.za)