Telkom a re-run of the same movie: Analyst

Analysts have questioned Telkom’s ability to deliver a return in the near- to mid-future, with one saying that investors are increasingly frustrated of seeing a re-run of the same movie when it comes to the telco.

Shares in Telkom closed 69 cents or 4.51% higher on Friday (14 June), with its shares up 25% or R3.20 over the past month. The market was closed on Monday for a public holiday.

On Friday Telkom reported a 73.2% decline in headline earnings per share to 87.0 cents in results for the year ended March 2013.

Group operating revenue decreased by 1.7% to R32.501 billion (2012: R33.079 billion).

The decrease is mainly due to lower fixed-line voice revenue, partially offset by an increase in mobile and data revenue, Telkom said.

Speaking on CNBC Africa post Telkom’s results, Gryphon Asset Management portfolio manager Reuben Beelders said: “Telkom’s results are very interesting; you’ve had a balance sheet that’s done virtually nothing over the past year.”

“The only difference is that R12 billion that’s been written off the plant and equipment. They have to live with virtually no profit, so all you have is a balance sheet that’s shrunk by R12 billion.”

Telkom’s board took the decision to impair the carrying value of the assets of the group by R12 billion for the year ended 31 March 2013.

After the impairment the net asset value is R34 per share, Telkom said that the impairment takes into account the impact on the financial returns of the group in light of technology changes, competition from mobile operators and evolving regulatory landscape over more than a decade.

“I think the question for investors is will this business ever generate a return on equity? The equity is now a lot smaller, so the hurdle has just been lowered significantly,” Beelders said.

“But critically, if one looks at Telkom, you’ve had so many management changes, so many issues that keep recurring, you’ve got payroll expenses which are significantly up again this year, partly due to the fact that you’ve had redundancies and staff lay-offs.”

In March, Telkom appointed Sipho Maseko as its new group chief executive, and Brian Armstrong as its chief operating officer. The group also appointed new board members in December.

Telkom said on Friday that 1,800 out of approximately 21,000 employees have accepted it’s voluntary retrenchment package initiated in March.

“I think investors are increasingly just tired of seeing a re-run of the same movie. My personal opinion, I would like to see some delivery before I buy into the stock.”

“The only thing that’s really in favour of the stock right now is that it’s trading at probably a 50% discount to the NAV, which management now claim it to be R34. It’s probably trading at a massive discount to that.”

“The question to me is will they ever generate a return on equity,” Beelders said.

Gavin Cawse, portfolio manager Nedbank Private Wealth Stock Broking said that the market would be comfortable with Telkom writing down its outdated equipment.

He said that the group’s new board was strong and appeared to be looking at the underlying issues with the company.

“They had all sorts of excuses with past executives…the market wants delivery,” Cawse said. “The share price is certainly not going to move until the market sees that delivery.”

On Friday, Maseko pledged accountability for the group’s  future performance, which appeared to be well received by those who attended his results presentation in Sandton.

More on Telkom

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Sipho Maseko the new Telkom CEO

Telkom impairs R12 billion in assets

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Telkom to appeal R449m fine

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Telkom a re-run of the same movie: Analyst