What is going on at Telkom?

Shares in Telkom climbed for yet another day on Monday (12 August) as investors continue to show new found confidence in the group’s ability to turn itself around.

Telkom’s share price has lifted 31% or R5.32 since January, and 67% over the past three months. It closed at R22.25 on Monday, well away from its 52-week low of R11.34 in May, and giving the group a market cap of R11.59 billion.

While opinion amongst analysts is still divided as to the actual value of group, its management has shown great confidence through share purchase.

In late July, CFO of Telkom Jacques Schindehütte, purchased 55,000 shares at a value of R994 340.38, following in the footsteps of CEO Sipho Maseko, and chairman Jabu Mabuza, who bought 52,520 shares worth R999,980 and 26,000 shares worth R497,581, respectively.

Nadim Mohamed, investment analyst and partner at First Avenue Investment Management said: “It is interesting that many of the board members as well as CEO and CFO have been buying shares recently.  This is a strong signal of the board’s confidence in the turnaround strategy and value that they believe it will unlock.”

“It’s good to see the board have some ‘skin in the game’ as it aligns their interests closer to the company.”

Mohamed however, cautioned not to read too much into it from an investment perspective – “in my experience, share price is driven by the long term economics of the company and the market has yet to see signs of this recovery in Telkom”.

Irnest Kaplan, MD of Kaplan Equity Analysts pointed out that Telkom’s shares have been undervalued for some time.

“It is fair to say that Telkom’s share has been largely undervalued for some time. Arguably, it’s dropped too much,” the analyst said.

Earlier in August, Telkom announced the conclusion of its substantive negotiations with trade unions the Communications Workers Union (CWU), the South African Communications Union (Sacu) and Solidarity.

It marked an end to a dispute which began in March, after Telkom announced that management and bargaining unit staff would be afforded the opportunity of applying for voluntary severance packages (VSPs) and early retirement packages (VERPs) until the end of August 2013.

And in mid July, the Competition Tribunal approved the settlement drawn between Telkom and Competition Commission, which would see the incumbent telco pay a R200 million fine for market dominance abuse.

“It will allow the [Telkom] to move beyond legacy complaints and litigation that have been a drag on performance, strategic focus and sound partnerships and which occupied the attention of senior executives for a long period,” said Telkom’s Sipho Maseko.

In June, Telkom decided to impair the carrying value of R12 billion worth of assets, giving the group  a net asset value per Telkom share of R34.

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What is going on at Telkom?