Telkom’s share price has reached its strongest levels in more than five years, touching highs not seen since May 2009 when the telecommunications operator disposed of its 50% stake in Vodacom.
On Friday, the counter reached a new five-year high of R46,42/share before falling back. On Monday morning, it was trading higher again, at R45,84. If it closes at or above that level, it will be Telkom’s highest close since mid-May 2009, when it sold 15% of its stake in Vodacom to the UK’s Vodafone and disposed of the remaining 35% it held in the mobile operator to shareholders.
Telkom has rocketed higher in the past year on investor optimism that CEO Sipho Maseko — appointed on 1 April 2013 and backed a strong board of directors — has what it takes to turn around the ailing operator. Since 6 May, when the share touched an all-time low of R11,93/share, Telkom has added a remarkable 284%. In that time, its market capitalisation has risen from just R6bn to R23,2bn.
The improvements have come despite a muted performance by Telkom’s traditional fixed-line business. Indeed, for the year ended 31 March 2014, fixed-line data revenue went into reverse for the first time, recording a decline of 1,1%. The number of fixed lines in service continued a decade-long decline, falling by 4,8% to just over 3,6m, from 3,8m a year ago. However, the company managed an increase of 6,5% in the number of broadband ADSL subscribers.
Group revenue was flat at R32,5bn, helped by good growth in Telkom’s mobile business, where data revenue shot up by 80,2%.
Investors appear to have been cheered by an improvement in heading earnings per share, which rose by 35,1%, excluding once-off items, on the back of a cost-cutting programme.
The company indicated when announcing its results earlier this month that it intends maintaining this focus on cost reduction. Acting chief financial officer Deon Fredericks said Telkom wants to cut its ratio of staff expenses to revenue to 25% in the next five years. The ratio is currently 28,6%.
Telkom has also indicated that it is giving serious thought to the idea of relocating its head office from downtown Pretoria to its campus in Centurion, a move that could save it as much as R200m/year if it happens. The company reiterated last week that it is conducting a “complete strategic review” of its property portfolio, but emphasised that no final decisions had been taken.
Negotiations with MTN, first announced in March, are continuing, too. The two companies hope to expand their existing roaming agreement to include bilateral roaming and the outsourcing of the operation of Telkom’s radio access network. The move should help offset losses at Telkom Mobile. — © 2014 NewsCentral Media
