Analysts warn that Telkom faces significant challenges, illustrated by its planned R13 billion impairment on Openserve, Telkom Consumer, Gyro, and BCX.
On Wednesday, the Telkom share price plummeted 16% after it said it expects a 465% to 485% decline in basic earnings per share (BEPS).
On a normalised basis, BEPS is expected to decline by 70% to 90%, and HEPS is expected to be down by 60% to 80%.
Telkom said the business suffered because of load-shedding, low economic growth, high interest rates, and evolving technological advancements.
The disastrous trading statement comes amidst Telkom’s strategy to transform into a modern telecommunications company and mobile operator.
Telkom has tried to sell its fibre and tower assets, but not much has come of these plans to date. In February, it announced plans to cut as many as 15% of its workers.
After consulting with unions, voluntary severance packages have now been extended to all employees, Telkom said, and costs will come through in 2024.
Mergence Investment Managers head of equities, Peter Takaendesa, said Telkom remains in structural decline with weaker cash generation.
Takaendesa said Telkom has great infrastructure assets. However, they are worth more to those who can use them efficiently.
Wayne McCurrie from FNB Wealth and Investments described Telkom’s latest trading update as a disaster.
“What Telkom said is that what it has got isn’t working. It has to restructure the whole business to keep pace with the modern way of communication,” he said.
“That is why there will be a R13 billion write-down of core assets and why Telkom’s profits have disappeared.”
McCurrie explained that telecommunications require tremendous investments favouring large players like Vodacom and MTN.
“There is huge capital expenditure (Capex), fierce competition, and enormous regulatory pressure. Data prices continue to decline, putting pressure on mobile operators,” he said.
“The smaller platers – Telkom and Cell C – cannot compete effectively and made a good return on their money.”
Sasfin Securities’ David Shapiro explained that the R13 billion impairment shows that Telkom’s book value for its assets is much higher than what it is worth.
“It tells you that Telkom’s productive assets are not going to generate what they did in the past,” Shapiro said.
He argued that Telkom should have taken the deal from MTN. “It was silly to turn your back on what was a rescue-type deal,” he said.