Telkom is no darling: analyst
Despite a 43% rise in its share price since May, when the group reached its lowest point, Irnest Kaplan, MD of Kaplan Equity Analysts believes there are still too many uncertainties in Telkom to start getting carried away.
Shares in Telkom have lifted R5.17 since it reached an all-time low of R11.93 on 6 May, to a closing price of R17.10 on Wednesday (3 July).
Over a year period, Telkom is still off 7.47% or R1.38, but is up a fraction (1%) since January, giving the group a market cap of R8.91 billion.
By 10h00 in early moring trade on the JSE on Thursday (4 July), Telkom shares were off 10c to R17.00.
Last month, 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, Telkom said was mainly due to lower fixed-line voice revenue, partially offset by an increase in mobile and data revenue.
Telkom’s board also took the decision to impair the carrying value of the assets of the group by R12 billion for the year ended 31 March 2013, giving the group a net asset value is R34 per share.
“It’s very difficult to pin down Telkom’s climb to one specific reason,” Kaplan told BusinessTech. “Is Telkom the company it was six months ago? Yes,” he said.
“It is fair to say that Telkom’s share has been largely undervalued for some time. Arguably, it’s dropped too much,” the analyst opined.
Kaplan said that the company’s share price needs a catalyst to change it. He pointed to a recent change in the board and top management of the company.
“We started seeing changes in the board, with a bit more acumen than before. There was the write down of the network, which would ordinarily be seen as a negative, but in Telkom’s case, it symbolises a maturity and a forward looking view from management. It’s a sign that management is being objective, and that can be viewed as a good thing.
He said that, while the group’s income statement didn’t make for particularly good reading, “when one looks at the operating cash flow, it was about R1.5 billion higher than before”.
Telkom reported cash flows from operating activities of R7.5 billion, from R5.9 billion in 2012.
Kaplan said that the appointment of a CEO recently, did remove the uncertainty that surrounded the group when it has appeared to be in limbo for some time.
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.
Kaplan noted that there has been a lot of interference in Telkom by government, the group’s main shareholder, “with its strategy certainly different from that of which shareholders would want from the group”.
He said this difference would make it a difficult company to manage. “If they (management and the board) can manage this relationship, it would be a big win”.
Kaplan also said that there are certain elements in Telkom which are doing well, indicating that “there is hope.”
However, the analyst said he didn’t think that the company would climb to much more in a short period of time.
“It’s not going to be a darling,” Kaplan said. “There are just too many unknowns, it’s still difficult to call. There needs to be more clarity before one can take a long term view on Telkom.”
Other analysts have been less than complimentary of Telkom in recent times.
Speaking on CNBC Africa, post-Telkom’s results, Gryphon Asset Management portfolio manager, Reuben Beelders said: “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.”
More on Telkom
Telkom a re-run of the same movie: Analyst
Sipho Maseko the new Telkom CEO
Telkom impairs R12 billion in assets
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