Shares of partly state-owned Telkom closed higher on the JSE yesterday after it upgraded its medium-term growth targets and said it would reconsider the suspension of dividends. Photo: REUTERS/Siphiwe Sibeko
Shares of partly state-owned Telkom closed higher on the JSE yesterday after it upgraded its medium-term growth targets and said it would reconsider the suspension of dividends. Photo: REUTERS/Siphiwe Sibeko

Telkom share price rises after big profits lead to upgraded targets

By Dineo Faku Time of article published May 25, 2021

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JOHANNESBURG - SHARES of partly state-owned Telkom closed higher on the JSE yesterday after it upgraded its medium-term growth targets and said it would reconsider the suspension of dividends.

This was after profits for the year to the end of March soared.

Telkom, South Africa’s third-largest mobile operator, said it expected both revenue and earnings before interest, taxation, depreciation and amortisation (Ebitda) to grow in the mid-to high single digits between the 2022 and 2024 financial years.

The higher growth forecast for revenue came as service revenue was now the main driver of revenue, cushioning the impact of muted growth from fixed voice business, which now contributed 15 percent to the entity, said Telkom.

It also projected capital expenditure of between R8 billion and R8.5bn a year over the medium term in growth areas, while its debt to Ebitda would remain below 1 times.

Telkom, whose subsidiaries include BCX, Yep, Gyro and Telkom Consumer, said despite the doubts over the upcoming spectrum auction, management believed the group would likely reconsider the suspension of the dividends.

Chief executive Sipho Maseko said a new dividend policy would be announced in November.

“After two years of strong free cash flow generation, management believes Telkom is in a position to reconsider the suspension of the dividend policy. Therefore, a new dividend policy will be communicated on release of the 2022 financial year interim results in November 2021,” Maseko said.

In June last year, Telkom announced it would suspend its dividends for three years from its 2021 financial year, to maintain a healthy balance sheet.

Highlights for the year to the end of March were surpassing the 15 million mobile subscriber mark and the 88.1 percent surge in profit after tax to R2.62bn from R1.39bn a year earlier, mainly attributable to higher Ebitda.

Group revenue grew by a modest 0.4 percent to R43.2bn. However, mobile service revenue growth decelerated to just over 20 percent in the second half of the year, and revenue declined at the BCX business, because the national lockdown and the workfrom-home response impacted fixed voice revenue from enterprise customers.

Commenting on the results, Mergence Investment Managers head of equities Peter Takaendesa said Telkom’s financial results for the year to the end of March had been in line with market expectations.

Takaendesa said Telkom’s management team had continued to execute very well on the mobile business and had further gained market share to solidly overtake Cell C by revenue.

“They have also executed well to optimise the cost base in the legacy fixed-line business and consequently reached a milestone of operating profit growth from the mobile business more than offsetting the decline in other parts of the group,” Takaendesa said.

He said the significant achievement in Telkom’s turnaround plan would allow the business to resume dividends while continuing to invest for growth in mobile and fibre.

“We find the group revenue growth guidance of mid-high single digit achievable over the next three years, as growing new revenue streams now contribute the majority of group revenue,” Takaendsa said.

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