Telkom shares dip 6%

Published Feb 2, 2016

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Johannesburg - Shares in telecoms giant Telkom fell by more than 6 percent on news that its mobile unit would not reach breakeven in March as it had forecast, due to rising interest rates and cost pressures.

Telkom shares lost 6.63 percent to close at R59.76 on the JSE yesterday.

“Our initial expectation that the mobile business would break even by March 2016, has been tempered by the operating environment and cost pressures,” the company said.

Telkom yesterday flagged that group operating expenses had risen 2 percent to R4.27 billion in the quarter to December. This as the Reserve Bank hiked interest rates to 6.75 percent and the economy was expected to grow 0.7 percent from a previous 1.3 percent forecast.

Denis Smit, the managing director at consulting firm BMI-TechKnowledge, said yesterday that Telkom mobile’s lower forecast was the latest indication of the tough trading environment.

“It comes as no surprise that the mobile unit will not break even by March, because since the original breakeven announcement was made, the economy has been on a downward trend. This is a reflection of a tough trading environment and customers are squeezed,” Smit said.

Data revenue for Telkom mobile’s unit grew by 56 percent to R417 million in the quarter to December, the company said.

However, Telkom’s plans to boost the growth of its mobile unit were dealt a blow after talks failed with Dubai-based Oger Telecom to buy its majority stake in cellphone company Cell C.

Prior to the talks, its proposed network sharing agreement with MTN was abandoned after opposition from the competition authorities.

“There is a lot of competition in the mobile sector. For example, Cell C and MTN which dominate the mobile sector, have upped their game. The Cell C deal would have boosted the mobile unit,” Smit said.

In its statement yesterday, Telkom gave a negative outlook due to turmoil in the economy. “We expect continued weakness in the economy and anticipate that our customers will migrate to cheaper packages or delay spending on new infrastructure,” it said.

However, the company said its mobile business grew in the quarter to December with services revenue up 37 percent and data revenue 56 percent higher year on year.

Telkom’s net revenue grew by 7 percent to R7.24bn in the quarter to December as its turnaround strategy, which included shedding jobs and the outsourcing of services, paid off.

Meanwhile, the company had launched a free fibre-to-the-home trial for more than 11 000 of its Digital Subscriber Line, or DSL, clients in a bid to grow market share, the company said.

“As part of the trial, DSL customers within Telkom’s fibre footprint will be given the opportunity to upgrade their copper-based connectivity, to the company’s fibre network.”

In November, ratings agency Standard & Poor’s said Telkom’s credit ratings outlook was stable.

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