The only hope for Telkom to increase its financial position is for KT Corp to boost Telkom’s fixed-line broadband penetration through better quality fixed broadband access. This is according to Hlelo Giyose, chief investment officer and principal at First Avenue Investment Management.
Telkom has been struggling financially since the company sold its stake in Vodacom in 2009, and even a deal with KT Corp did not help to bolster the company’s share price.
Giyose said that Telkom’s only hope to boost its financial fortunes is to increase their fixed-broadband presence. “Telkom’s only hope is what KT will do – to spread broadband into the home as fast as possible and improve the quality of broadband [make it faster],” said Giyose.
Telkom is not a buy: Giyose
Despite the potential to boost Telkom’s fortunes through better broadband services, Giyose remains negative about Telkom’s financial future.
Telkom’s share price is currently at an all-time low, but Giyose said that, even at these low levels, it is not a good buy.
Giyose argues that Telkom will never to earn a return above the cost of capital on their book value, which is around R56 a share.
Despite the fact that Telkom’s share price is trading at around 50% of its book value, Giyose said it remains a bad investment. “The probability of you earning a 50% return on Telkom’s book value of R56 is zero,” Giyose said.