No respite for Telkom

Telkom’s (TKG) shares were again under pressure on Thursday (March 1, 2012), having traded down to its lowest level since 2008 on Wednesday – this after reports that Korea Telecom (KT Corp) may abandon its proposed transaction with the group.

In lunchtime trade, shares in Telkom declined a further 3.02%, or 78 cents, to R25.06 having closed at R25.81 overnight.

Under the looming threat of a potential R3.5 billion anti-competitive fine, Absa Asset Management told Bloomberg that KT Corp may abandon its offer for a 20% stake or cut its offer price due to the rapid decline in the group’s value.

Suraj Sookdhew, portfolio manager at RMB Private Bank, told BusinessTech that, from the end of August 2011, the Telkom share price has lost approximately 26%.

The original announcement, made by Telkom in October 2011, referred to a transaction with KT Corp being done at a price of R36 per Telkom share.

A dealer at PSG Konsult said on Thursday that there was no respite for the group. “It (Telkom) is still under huge pressure and it doesn’t help that it features on the front page of Business Day,” he said.

Fred Teeling- Smith, telecoms analyst at STANLIB, underlined Telkom’s plight. “Telkom’s current share price is at an all-time low post the unbundling of its investment in Vodacom (VOD).

He said that this was due to a number of factors, including frequent changes of top-level management, with a result that the market did not believe that the current management team had the ability to deliver on its promises.

The analyst said that government’s ongoing position that Telkom remains a strategic asset, and the obvious conflict that arose between shareholder returns and government objectives, was also a negative factor. The government owns 39.8% in Telkom.

He pointed to declining fixed line revenues without seeing any reversal of this trend, along with poor capital allocation decisions, as weighing on investor sentiment.

Teeling-Smith noted that Telkom also faced ongoing litigation on a number of other issues, aside from the high profile market dominance abuse case.

The analyst said that potential catalysts that could spark a reversal of fortunes on the JSE included clarity around the Competition Commission fine.

He concluded that finalisation of a transaction with KT Corp, especially if it is clear that the group will be able to provide Telkom with the strategic direction, would also boost investor sentiment.