Telkom: Surprise turnaround

We may be seeing a turnaround for the state-owned communications business Telkom.

- Earnings per share expected to rise by at least 20%

- Signs that senior management changes are working

- Interim results expected on the 18 November

Stories of the dropping of the 8ta branding, missed deadlines, the blocking of the KT deal and the management revolving door seems to be a thing of the past as the share price has traded to a 52-week high and surpassed analysts’ expectations. In a JSE SENS statement on Tuesday, Telkom announced that they expect headline earnings per share and basic earnings per share for the six months ended September 30 2013 to be at least 20% higher than that of the prior comparable period. It also stated that results for the prior comparable period were negatively affected by the provision for the Competition Commission fine of R 389m.

Last year Telkom’s biggest shareholder, the South African government, rejected the R3.3bn offer by South Korean KT Corps for 20% of the business which saw the share price drop to an eight year low.  In March this year, there was investor concern and uncertainty following more changes to senior management with group CEO Pinky Moholi handing in her resignation, while Sipho Maseko and Dr. Brian Armstrong joined the team. 

Dr. Armstrong was an internal move, previously the managing director of Telkom Business, and Mr Maseko brought with him comprehensive telecoms sector experience, previously the managing director of Vodacom and before that, CEO of oil company BP South Africa. Looking at the previous results, it seems that these changes have worked as the group reported a disappointing set of results for the year ended March 2013, with revenue dropping 2% to R32 billion and Telkom’s core business, fixed-line voice which contributes half of overall revenue, declined 9.6% to R8.6bn.

The announcement comes in week where the South African telecoms sector has been in the spotlight. Vodacom plummeted 6.3% lower on Monday and continued to sell-off on Tuesday as investors digested the announcement that the Independent Communications Authority of South Africa (ICASA) had reached a decision on the issue of termination rates, for both mobile and fixed-line networks. Mobile termination rates (MTRs) have been placed on a three-year sliding scale – with a 50% decrease scheduled for next year. It is important to note that this is the first regulatory step in normalising the South Africa telecommunications space.  A follow on from this, CEO Alan Knott-Craig (former head of Vodacom South Africa) of the non JSE-listed telecoms company Cell C, filed a complaint with the Competition Commission accusing MTN and Vodacom of anti-competitive behavior.

After this week’s developments, investors eagerly await Telkom’s interim results which are expected on 18 November. 

Percentage difference between Telkom to Vodacom, MTN and the JSE All Share index.
Chart courtesy of I-Net Bridge

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