Nick Norman Smith, chief investment officer at Lentus Asset Management, says that the decision by government to block the Telkom- Korea Telecom Corporation (KT) deal was “horrendously, stupendously, and horrifically bad”.
“It is almost quasi nationalisation. They [government] are just taking the fortunes of this company [Telkom] to further their own goals – totally discarding minority shareholders,” Norman Smith said.
Norman Smith added that government may well fail to further their goals (like cheaper broadband to all) because of the damage done to Telkom through blocking the KT deal. He opines that blocking the KT deal may well result in less competition, translating in slower and more expensive broadband for longer.
Daniel Kraus from Stock Alert said that the decision by cabinet to block the deal can be described as a national embarrassment.
Kraus is also not convinced that Telkom is a good investment, even at the low levels which Telkom is currently trading at. Norman Smith agreed, highlighting that government’s interference in Telkom is a major concern.
“You want Telkom to shut down a lot of their less profitable businesses, streamline the company and focus on services like broadband where they can outperform the competition,” argued Norman Smith. “However, government has basically come out and said that they will not allow Telkom to do that, and that government will tell them what to do. Telkom will therefore not be allowed to follow the best business model.”
“On the surface it is a value investor’s dream, but I am just concerned what government will decide is Telkom’s fortune next. While Telkom is cheap and unpopular, government’s shareholding in the company makes it a high risk investment,” Norman Smith concluded.
Telkom will publish its financial results for the year ended March 2012 on Friday 8 June, and it is not likely to be a pretty picture.
On Monday (4 June) the group revised its expected earnings in a trading statement for the year ended March 2012, saying that basic earnings per share from continuing operations are expected to be between 95% and 100% lower than the comparative period.
In March, Telkom had warned shareholders that it expected basic and headline earnings per share from continuing operations to be at least 90% and 25% lower than the previous year, respectively.