The state-owned company coming after MTN and Vodacom in South Africa

State-owned Telkom is outperforming its peers in the local telecommunications market, taking market share from incumbents MTN and Vodacom.

This is according to All Weather Capital deputy chief investment officer and portfolio manager Sanelisiwe Tofile, who chose Telkom as his stock pick in an interview with BusinessDayTV.

Over the past five years, Telkom has experienced a dramatic turnaround, falling to one of the deepest losses in its history and rebounding to one of its highest profits.

Telkom was on solid footing in 2022, but 2023 proved to be a challenging year and saw the telecoms giant plunge into a R9.97 billion loss.

This was primarily driven by non-cash impairments totalling R13.2 billion, which affected the group’s Openserve and Telkom Consumer units.

Telkom also paid R1.07 billion in restructuring and severance costs in 2023, putting the company further into the red.

However, the company rebounded in 2024, returning to a profit of R1.88 billion. Telkom’s recovery peaked in 2025, when its profit shot up to R7.50 billion.

This was due to the sale of Telkom’s masts and towers business, Swiftnet, which raised R4.4 billion. This sale also allowed Telkom to stabilise its balance sheet.

Telkom managed to remain in the black in its latest financial year, reporting a R3.55 billion profit from its continuing operations for 2026.

The company’s recovery was not limited to its bottom line, with Telkom’s balance sheet also looking far healthier now than it did five years ago.

Between 2022 and 2023, Telkom’s total interest-bearing debt had climbed from R11.9 billion to R14.3 billion. The company had raised debt to fund spectrum purchases and capital expenditure.

Starting in 2024, Telkom’s management worked to de-leverage its balance sheet and aggressively paid down borrowings.

By 2025, Telkom’s debt had been reduced to R11.6 billion, and it dropped even further to R6.59 billion by the end of the 2026 financial year.

This saw Telkom’s net debt-to-EBITDA ratio improve significantly from 1.2x in 2022 to a far more comfortable 0.5x in 2026.

In this five-year period, Telkom also successfully transitioned away from legacy terminal fixed-line voice services to a data-led, mobile-focused operation.

Analyst opinion

Tofile said he chose Telkom as his stock pick because the company has had an improving earnings and cash flow trajectory over the past few years. 

“It has outperformed its peers in the local mobile market. You have seen both Vodacom and MTN struggle a little bit, whereas Telkom has been taking market share,” he said. 

“There has been a bit of a price war, but they have always been able to operate at the lower price level in the market, so I think that has benefited them.” 

Tofile said Telkom has implemented steady improvements across some of its divisions over the past few years, using OpenServe as an example. 

Openserve is South Africa’s largest telecommunications infrastructure provider and a wholly-owned subsidiary of Telkom.

This business was transformed over the past five years, having evolved from an internal division at Telkom into a standalone subsidiary.

Openserve was legally separated from Telkom in 2022. A year later, Openserve came under severe financial strain as a standalone entity.

The company remained reliant on legacy assets in a deteriorating economic climate, which significantly affected its cash flow projections.

This resulted in Telkom taking an R7 billion impairment loss on the Openserve cash-generating unit in 2023. Openserve recorded a standalone net loss of R5.58 billion that year.

Following this huge write-down, Openserve stabilised its operations and consistently grew its profit as a standalone subsidiary.

In the 2026 financial year, Openserve’s revenue grew to R12.63 billion, and its net profit reached R649 million, a significant turnaround from its 2023 loss.

Tofile said Openserve’s turnaround allowed Telkom to offset the weaker performance of other business units. “BCX is struggling a little bit, but I think that is more than offset by OpenServe and the mobile division,” he said. 

On top of this, Tofile said Telkom is attractively valued at 2.5x EV/EBITDA and 7x PE. “Both are at a discount to history and also at a discount to peers,” he said.