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Telecoms company Telkom shares stumble on third quarter legacy issues

Shares in Telkom stumbled yesterday after the mobile operator said that in the quarter ending December 31, 2021, although it had demonstrated a solid performance in the broadband market, legacy businesses continued to drag on its operations. Photographer: Tracey Adams/African News Agency (ANA)

Shares in Telkom stumbled yesterday after the mobile operator said that in the quarter ending December 31, 2021, although it had demonstrated a solid performance in the broadband market, legacy businesses continued to drag on its operations. Photographer: Tracey Adams/African News Agency (ANA)

Published Feb 8, 2022

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SHARES in Telkom stumbled yesterday after the mobile operator said that in the quarter ending December 31, 2021, although it had demonstrated a solid performance in the broadband market, legacy businesses continued to drag on its operations.

Telkom’s shares dipped by 7 percent to R46.67 yesterday morning, following the release of its trading statement, which said group revenue had declined by 2.3 percent year-on-year to R10.8 billion. The shares closed at R46.75 on the JSE yesterday.

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The shares fell despite the firm’s active mobile customers growing by 10 percent year-on-year to R16.4 million. Prepaid customers surged by 12 percent year-on-year to R13.8m and mobile broadband continued to support growth.

Telkom group CEO Serame Taukobong said: “Our wholesale business, Openserve, continued with its growth trajectory in the fibre market.

“In line with its strategy to accelerate the fibre to the home footprint while simultaneously focusing on connecting a home, Openserve grew homes passed with fibre by 65.5 percent year-on-year to R801 000.” This was offset by the ongoing challenges in the IT business and the legacy fixed business, Telkom said.

BCX revenue declined by 3.6 percent to R3.7bn because of global supply challenges such as the global chip shortage and shipping delays, exacerbating backlogs and offsetting any relief from the waning Covid-19 conditions.

However, revenue in the mobile business and the masts and towers business, Swiftnet, grew 4.9 percent and 4.6 percent compared to the previous year.

Telkom said substantial progress had been made in its bid to list Swiftnet on the JSE by the end of 2022, adding that it expected to make a further announcement soon on the listing.

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Rand Swiss director and portfolio manager Gary Booysen said the share price slump was almost certainly in response to the trading statement.

“The market was likely disappointed that the legacy businesses are continuing to drag on operations.

“The 10 percent growth in active mobile customers to around 16.4 million has not been enough to encourage markets. The Special Investigating Unit (SIU) investigation is probably also weighing on sentiment,” he said.

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Last month the government announced that the SIU was probing the group’s disposals of its African businesses about 15 years ago. Booysen said: “The company has said it is confident that based on the information at its disposal, nothing new will be revealed by the investigation, and there will be no material losses for shareholders.

“At the same time, the investigation will probe deals going back as far as 2006, although it is not limited to this time frame, with a specific focus on how the advice was paid and various transactions across Africa.

“As local investors have experienced too often when it comes to corporate governance and corruption in South Africa, where there is smoke there is often fire. The SIU investigation will no doubt increase the risk premium required by investors and place downward pressure on the stock,” he said. Booysen said he had previously been optimistic on the Telkom share price outlook, which is under R25, given the reasonable valuation and strong management team under its former CEO Sipho Maseko. Maseko stepped down in December with Taukobong taking over.

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Booysen said Taukobong might have his work cut out for him.

“Leadership change always adds risk, and Sipho has large shoes to fill,” he said. “While the business faces intense competition from incumbents Vodacom and MTN, the shares, now circa R46, still trade at around half MTN and VOD’s one-year forward earnings.

“The business is cheap compared to the larger operators,” Booysen said.

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