Wayne McCurrie, portfolio manager at Momentum Wealth says that, despite Telkom’s recent rally on the Johannesburg Stock Exchange, “essentially nothing has changed” to justify the share hike.<\/p>\n
Telkom advanced more than 5% in trade on Wednesday (2 April), and added an additional 60 cents on Thursday after a court ruling on mobile interconnection rates earlier in the week, appeared to favour the group in the short term.<\/p>\n
Shares in the group show a one-year return of 152%, up to R36.92 from its 52-week worst level of R11.34, reached in May 2013, and giving it a market cap of just over R19 billion.<\/p>\n
Speaking on Business Day TV, McCurrie said that \u201c8ta [Telkom Mobile] is never going to make a profit. It is never going to make a profit in its life\u201d.<\/p>\n
\u201cI have the greatest empathy with Telkom management \u2013 your primary business is in the decline. It is hard to stem that,\u201d said McCurrie. \u201cThey have tried on how many occasions now to find other ways [to make money].\u201d<\/p>\n
\u201cMaybe the worst thing they ever did was to unbundle [sell] Vodacom \u2013 they should have kept it,\u201d he said. To replicate Vodacom through Telkom Mobile, he added, is very difficult and costs lots of money, the analyst said.<\/p>\n
McCurrie\u00a0said that being a quasi-state owned enterprise means that it is unable to retrench people, cut back or rationalise to contain costs.<\/p>\n
\u201cI would not buy Telkom shares. Essentially nothing has changed yet the share price has more than doubled,\u201d he said.<\/p>\n
David Shapiro from Sasfin Securities weighed in, saying that Telkom still faces many challenges, which will need to be solved before he considers it a solid investment.<\/p>\n
\u201cThere is still so much work that they have to do. I just don\u2019t think they are in the right area of the market,\u201d he said.<\/p>\n
Shapiro noted that the recent mobile termination rate ruling will help Telkom. “Is it big enough to make a big difference?” he asked.<\/p>\n
“I know they are trying to turn this company around, but I think this is a massive, massive ask.”<\/p>\n
According to McCurrie, Cell C and Telkom Mobile will either have to increase their prices or throw in the towel. \u201cYou cannot continue losing billions and billions of rands,\u201d he said.<\/p>\n
In March, Telkom advised that it expects headline earnings per share for the year ending March 2014 to be at least 20% higher than in 2013.<\/p>\n
It also signed an agreement with MTN which will see MTN take over financial and operational responsibility for the roll-out and operation of Telkom\u2019s radio access network (RAN).<\/p>\n
The agreement will enable each party to be able to roam on either party\u2019s network.<\/p>\n
Telkom expects to publish its annual results on about 13 June 2014.<\/p>\n
Telkom rallies to 30-month high<\/strong><\/a><\/p>\n MTN, Vodacom call termination case: court rules<\/strong><\/a><\/p>\n Telkom is a remarkable place: CEO<\/strong><\/p>\n