Telkom undervalued: analyst
Despite a 70% rise in its share price since January, an analyst believes Telkom is still undervalued – however there is a caveat.
Shares in the converged telco rallied nearly 3% again trade on the JSE on Thursday (17 October), closing at R28.35, up from a low of R11.34 recorded in only May this year.
Telkom added 1.8% by noon on Friday (17 October), to R28.70 giving the group a market cap approaching R15 billion, having been almost half that only five months ago.
Nick Crail, Portfolio Manager at RMB Private Bank believes that Telkom is still undervalued. “There has been quite a re-rating based on the new management and stronger board,” he said.
“However, this momentum gain needs to be sustained. As long as Telkom continues to bring new information into the market that the market sees as favorable, the run can continue.”
The fixed line incumbent received a boost earlier this month when regulator, Icasa, announced plans to cut mobile termination costs dramatically.
However, Crail said that a lot of uncertainty still shrouds the company which might have a dramatic impact on its share price, and could lead to a sharp decline including negative Government involvement, “or a longer term strategy that the market doesn’t think will work or that costs aren’t being reduced or the strategy isn’t being delivered on.”
“For these reasons, we wouldn’t be investing yet as we want more clarity and evidence that the ship has been turned around,” he said.
Another analyst said that it was already too late to jump on the Telkom bandwagon for quick returns.
Telkom, last week (8 October), advised that it expects headline earnings per share and basic earnings per share for the six months ended September 2013 to be at least 20% higher than the corresponding period in 2012.
In the interim period in 2012, Telkom announced basic earnings per share of 85.2 cents, while headline earnings per share from continuing operations decreased by 35.5% to 191.7 cents.
Telkom is expected to publish its interim results next month (18 November 2013).
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