Telkom fell through R30/share on Thursday as the six-month-long slide in its share price — which has now wiped out more than 70% of its market value — continues.
The share fell to as low as R29.66 in intraday trading, giving it a market capitalisation of just R15-billion, down from the R50-billion valuation the market had attached to it in mid-2019 when its shares peaked at R100 apiece. It was trading at R29.85 at 3.49pm, slightly off its worst levels of the day.
The sell-off has been relentless, and accelerated after the group published its interim results in November and then pursued — and failed to bag — a deal to buy rival Cell C.
Late last year, Cell C signed a comprehensive expanded roaming agreement with MTN South Africa, with the latter expected, in effect, to manage the former’s network. This is likely to reduce Cell C’s capital expenditure requirements meaningfully and, coupled with a planned upcoming recapitalisation from the Buffet Consortium and other investors, could put it on a sounder financial footing and potentially turn it into a stronger competitor — to Telkom’s possible detriment.
Irnest Kaplan, MD of Kaplan Equity Analysts, said a revitalised Cell C poses a much bigger threat to Telkom Mobile than it does to Vodacom or MTN. “Telkom Mobile really is the only jewel in Telkom’s crown at the moment,” he said, adding that the Cell C and MTN tie-up could threaten it.
Sentiment
Also weighing on sentiment, and not only regarding Telkom but all the mobile operators, Kaplan said, is the Competition Commission’s recent findings on the data services market, which he said are broadly negative for the industry.
Telkom’s weak results, for the six months to end-September 2019, also haven’t helped matters. They showed a slowdown in net subscriber additions in its mobile business (though it continues to outperform the market) and an accelerating decline in the number of fixed lines in service as it decommissions its legacy copper network and as consumers moved to faster fixed-wireless solutions based on 4G/LTE technology.
The number of fixed lines in service fell below two million for the first time, a slump of 23% compared to September 2018, while the number of fixed broadband subscribers (including fibre) fell by 19.8% to 781 000.
The group’s balance sheet also weakened in the six-month period as it raised more debt to fund capital expenditure.
Kaplan said the 41% decline year on year in headline earnings per share has no doubt played a significant role in the sell-off in the share price. He said, too, that it could be argued that the share was simply incorrectly valued in 2019 before the sell-off started. — © 2020 NewsCentral Media
