Telkom leapfrogs Cell C to claim No 3 mobile place in SA
Telkom’s mobile business has grown in the lockdown period to surpass competitor Cell C, as the telecoms operator looks to pay almost R900m in taxes.
The group said it has entered into a payment plan with the SA Revenue Service (Sars) to settle an outstanding R870m liability. The amount is related to a judgment against the fixed operator earlier this year.
Telkom said it had appealed against a tax court judgment received on the dispute between it and Sars relating to the tax treatment of the loss that arose in the 2012 financial year on the sale of a foreign subsidiary, Nigerian operator Multi-Links.
The appeal was heard by the Supreme Court of Appeal in March, with a judgment handed down later that month against Telkom. A liability was recognised for the amount payable to Sars for the year to end-March 2020.
The amount will be paid up to March 2021, the group said, and will be funded out of monthly cash flows.
Despite the burden of settling this amount, the news does help “as it takes out some uncertainty given that a number has been placed on the liability”, said Farai Mapfinya, chief investment officer at Aequalis
Asset Managers.
Telkom, led by CEO Sipho Maseko, said in an update that Covid-19 has had a mixed effect on its businesses, with its mobile business experiencing growth in the first half of the year, while there was a big decline in fixed-line voice revenue.
Mobile data, which contributes about 70% of the mobile business, was the main driver due to strong growth in mobile traffic, Telkom said. So large was this growth, the group said, that it has taken market share from its competitors to become SA’s third largest mobile operator, a position long held by Cell C.
Telkom did not say how many customers it now has. By March, it had 12-million subscribers, compared with Cell C’s 14.4-million.
“Telkom’s rise in the mobile space correlates to the demise in Cell C, which looks to recapitalise in lieu of debt accumulated,” said Shaun Murison, a senior analyst at IG Markets.
Despite such gains for Telkom, Mapfinya does not think the growth in mobile is anywhere enough given the dynamics of the market and Telkom s sole reliance on the SA market.’
“If you’re not first or second in any of the markets you are operating in, it can be quite difficult,” he said.
The group said that despite the “challenging trading environment, Telkom liquidity remains resilient with a stable balance sheet”.
No debt has been raised since March, while the management is confident it can release R700m-R1bn in cash for the year through optimising working capital.
Peter Takaendesa, head of equities at Mergence Investment Managers, said Telkom’s update implies its mobile business has been strong over the past six months, to the extent that, with cost reduction measures, it has largely managed to offset the negative impact of the decline in the higher-margin traditional fixed-voice business.
“This is a result the market expected to be achieved in 1824 months so they have executed well so far, though the pace of the improvement in mobile profitability is unlikely to be sustained,” he said.
Murison said while Telkom’s balance sheet remains stable, investors will still monitor the group’s cash flow as it pays its Sars arrears and bids for spectrum — expected to be done by March 2021.
At the close of trade on Friday, Telkom shares were down 1.5% to R25, having fallen 29.3% so far in 2020. The group had a market capitalisation of R12.8bn. —