MTN has recorded a steep decline since achieving a record level of R184.45 in early February, closing Friday 2.31% lower to R157.52, valuing the company at R296.69 billion.
Similarly, Vodacom has come off a high of R129.88 in early January, to close 1.89% down at R108.25 on Friday (5 April) giving the group a market cap of R161.07 billion.
Shares in Telkom ended relatively flat on Friday, at R14.68, giving the group a market cap of R7.65 billion.
“Telkom’s announcement of new CEO is a good thing, but is it enough? The biggest problem with Telkom over the last few years has been its lack of identity and therefore its lack of coherent strategy,” Crail said.
“Sipho Maseko’s appointment and that of new COO Brian Armstrong show an intent from Telkom that they require top calibre, experienced telecoms management and that is definitely a step in the right direction.”
“However, from an investor’s point of view, the proof is in the pudding – and until Telkom shows us a clear and definitive strategy and a track record of delivery, it’s just noise,” the portfolio lead said.
Crail said that the fact that, in tandem with the PIC, the government has a controlling stake in Telkom could be good news in that they could push a particular strategy and demand results.
“Conclusion: another step in the right direction, however it’s just noise at present, we want more tangible strategy and delivery before investing,” he said.
Vodacom and MTN
As investment vehicles, Crail said that the short term outlook for MTN and Vodacom was neutral and defensive.
Longer term, he said, MTN was strongly preferred due to its African consumer exposure and growth abilities.
“Vodacom’s primary exposure is to RSA, and although their contribution should rise from their (limited) African involvement, the best reasons to hold Vodacom are its slick management, high dividend yield policy and its relatively defensive earnings.
“Going forward we expect no great growth to come from this counter and although aspects like decreased interconnect rates and more competition lower some aspects of their earnings profile, the role out of LTE, increased data contribution and M-Pesa and its derivatives should negate the other losses. Hold, because you want the dividend,” the analyst advised.
MTN’S juggling act
Crail said that MTN is juggling more balls because of its involvement in more jurisdictions, some of which (ie, Iran) aren’t exactly popular at present and there are risks to their involvement.
“Like Vodacom, voice and interconnect is under more competition and that will have a negative effect on earnings; however, the increased contribution from data, 3G and LTE in most markets and of course the Mobile Apps potential give this company a greater growth profile.”
“As with any new products brought to market, development and infrastructure spend will increase, but with such potential on the African continent, this stock is a keeper,” the portfolio manager said.
Telcos in SA
“We like the sector, especially because in Africa, there is so much potential for the cellphone and all sorts of applications (business and other) using this technology,” Crail said.
“Therefore, telcos have great potential. However, there are risks associated with this. Vodacom for its dividend and MTN for its growth,” the portfolio manager said.