File image: IOL
File image: IOL

Speculation over Cell C takeover plan heats up

By Dineo Faku Time of article published Nov 13, 2019

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JOHANNESBURG - Rumours of a Telkom takeover plan of struggling Cell C went into overdrive yesterday after the partially state-owned telecoms giant published a cautionary statement advising the market that it was contemplating an acquisition.

Blue Label Telecom, which bought a 45 percent stake in Cell C in 2017 for R5.5billion, also jumped 9.34percenton the JSE to close at R2.81 a share yesterday.

Blue Label has been under pressure since the acquisition, writing down the value of its investment in Cell C to zero in the year ended May.

Telkom shares closed 6.68 percent higher at R66.14 on the JSE yesterday.

Earlier Telkom delivered a robust performance for the six months to September, with revenue increasing 4.7percent to R21.5bn despite South Africa’s weak economic environment .

The group said that its growth was driven by strong growth in the mobile business and masts and towers in Gyro.

Chief executive Sipho Maseko said that the mobile service revenue continued to be the main driver, increasing 56.6percent to R5.6bn as subscriber numbers surged 75.5percent to R11.5million.

“Our mobile business remains the fastest growing business in the market, with market share gains underpinned by our affordable broadband-led propositions, which resonate with our customers,” Maseko said.

The group said Gyro contributed 11.7percent in masts and towers revenue.

Telkom declared an interim gross ordinary dividend of 73.17cents per share.

However, the earnings and free cash flow were impacted by a one-off cost related to the use of two roaming partners in the period.

Telkom entered into a roaming agreement with Vodacom after its agreement with MTN expired in June 2019.

Headline earnings a share decreased 35percent to 188.9c per share, mainly due to lower profit before tax.

Maseko said that the company’s strategy to upgrade customers to next-generation technologies led to a 19.1percent decline in fixed voice and interconnection revenue across the group.

“Despite this, Openserve’s and BCX’s overall revenue decline was contained at 8.5percent and 3.3percent respectively, due to growth generated by next-generation revenue,” said Maseko.

Group capital investment was R4.2bn, with more than 50percent in the mobile business.

Peter Takaendesa, a portfolio manager at Mergence Investment Managers, said the key theme was Telkom’s goal to become a big player in mobile was increasing the group’s cost base.

“Telkom is growing revenue in mobile business above 50percent. However the growth in mobile is putting pressure on the group,” said Takaendesa.


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