Investors have lost patience in Telkom: analyst

As Telkom (TKG) lost further ground in lunchtime trade on Wednesday, flirting with R26 on the JSE, an analyst says that investors have lost patience in the company.

Suraj Sookdhew, portfolio manager at RMB Private Bank, told BusinessTech that Telkom has been a perennial underperformer. From the end of August 2011, the Telkom share price has lost approximately 26% while the JSE/FTSE All Share index gained 10.5%.

“The underperformance may be attributed to a number of reasons, some being, lack of strategic direction from management, unresolved issues in Nigeria and the potential R4.5 billion anti-competitive fine.

“While we do believe that R4.5 billion, as Telkom management has pointed out, is excessive, should the fine resemble this number, we will see further pressure on the share price,” Sookdhew said.

Telkom has argued for a fine of about R26.8 million.

“Telkom management has, in the recent past, failed to provide strategic direction for the company. The entrance and subsequent exit from the Nigerian market has cost them dearly, while the local mobile business remains loss-making. Investors have lost patience,” Sookdhew continued.

He suggested that the worst-case scenario for the company would be “to muddle along, directionless”. However, the analyst says that a deal with Korea Telecom (KT) might help to turn around the group’s fortunes.

Korea Telecom (KT)  has indicated that they would like to acquire 20% of Telkom. The two companies have entered into a memorandum of understanding relating to the potential strategic venture.

“Analysts view this deal as very positive, providing Telkom with KT’s expertise and cash injection. The successful completion of this deal would be a catalyst for renewed investor interest.

“When the interest was first announced, analysts were looking for around R32 a share. With the current share price at just above R26, pricing would be an issue for both companies,” Sookdhew said.

RMB shrugged off any idea that Telkom might be broken up and sold off.  “With the South African government being a 40% shareholder, we do not foresee the company breaking up and being sold off,” Sookdhew said.

“The best-case scenario for Telkom would be the selling of a 20% stake to KT. We believe that their expertise in broadband and mobile services is what is needed to provide Telkom with strategic direction.

“The worst case would be the imposition of a massive fine on Telkom and the KT deal not going through, placing further pressure on the share price,” the analyst concluded.

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Investors have lost patience in Telkom: analyst