Openserve worth R20 billion – Dylan Bradfield

Sharenet portfolio manager Dylan Bradfield says Openserve is worth around R20 billion, more than Telkom’s current market cap of R15 billion.

He sees Telkom as an investment opportunity for those willing to wait because its assets are worth significantly more than where it is currently trading.

However, investors should note that Telkom faces significant headwinds and is not doing well operationally.

Over the last financial year, its revenue remained flat at R43.14 billion, and net income fell by 84.7% from R2.6 billion in 2022 to R346 million.

However, looking at the net income figure in isolation does not paint a complete picture of Telkom’s poor performance.

It realised a significant impairment loss on two cash-generating units, Openserve and Telkom Consumer.

The total impairment loss amounted to R13 billion, which brings the company’s net loss for the year to R9.97 billion.

Telkom CEO Serame Taukobong maintained they don’t need to be rescued by companies like MTN or former CEO Sipho Maseko’s consortium.

This may be true, but to unlock value for shareholders, Telkom is looking to sell some of its valuable assets.

Taukobong revealed that they are in the process of selling their Swiftnet towers and expect to close the deal within the next two months.

The company has also put many of its properties, valued at around R500 million, on auction, and it is looking for a strategic investor in Openserve.

Telkom recently announced that it had decided not to continue discussions with the Maseko consortium, which approached it with an unsolicited, non-binding offer.

It raises questions about the company’s value for shareholders and whether it is worth a punt.

Bradfield told Biznews that it makes sense for Telkom to sell many of its assets, like its towers, properties, and even a stake in Openserve.

He placed a valuation of around R20 billion on Openserve, which aligns with the earnings multiple of similar players in the market.

It means that Openserve is more valuable than Telkom’s market cap, signalling that the company is trading at a large discount to its underlying assets.

“We think MTN has a big interest in Telkom’s fibre assets. However, the Maseko deal showed that a lot of politics is involved.”

“If they can get those assets sales done, there is tremendous upside to shareholders,” Bradfield said.

Another scenario is for the Public Investment Corporation (PIC) to buy the government’s stake in Telkom.

It is, therefore, a stock which people can take a punt on by buying it, putting it in the bottom drawer, and waiting for good news.