Telkom hammered

Telkom’s share price plummeted following a poor trading statement on Monday, signalling that the market has lost trust in the company.

Telkom warned shareholders that its earnings for the six months ended 30 September 2022 will be much lower than the prior interim period.

Headline earnings per share (HEPS) and reported basic earnings per share (BEPS) are expected to decrease by between 45% and 55%.

Telkom had many excuses for its poor performance over the last six months. These excuses include:

• Its mobile post-paid and prepaid mix is changing, and the cost base is increasing.

• The impact of revenue deferral resulting from the continued growth of its post-paid mobile sales reduced revenue.

• A shift in the mobile product mix coupled with the upfront spend on handsets recorded immediately increased the cost of handsets, equipment, software, and directories by more than 30%.

• Maintenance costs and service costs increased materially. Maintenance costs increased by over 10%, while service fees increased by over 20%.

Telkom said these costs were partially offset by savings in other areas as payments to other operators, employee costs, marketing, and other expenses were well managed.

Net finance charges and fair value movements also partially offset the impact of increased costs and declined by more than 15% from R659 million.

Telkom benefitted from a favourable foreign exchange hedging position during the reporting period.

Notwithstanding the weaker performance in earnings and challenging trading environment, Telkom expects to sustain its topline revenue compared to the prior period.

Telkom share price hammered

The market is tired of Telkom’s excuses and poor performance, causing the share price to plummet by over 8% on the trading statement.

The latest sellout followed an even bigger drop last month when MTN walked away from talks to buy Telkom. Its share price plummeted by 24% on the news.

After the share price decline today, Telkom market cap dropped below R17 billion. It is now less valuable than Rain and Maziv (Vumatel and DFA).

Telkom has numerous valuable assets, including spectrum, an extensive fibre network, and a great tower and property portfolio.

Telkom is, therefore, an attractive acquisition target at these levels.

However, there is a problem. The government is a large Telkom shareholder, making negotiations challenging.

The government has scuppered many Telkom deals in the past, and there is no reason to believe the same will not happen in future.

The chart below shows Telkom’s share price over the last month.