Telkom’s share price plummeted by 30% over the last month on the back of poor results and MTN walking away from talks to buy the operator.
On Monday, Telkom released a trading statement warning 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, including a changing mobile subscriber mix and higher maintenance and service costs.
The share price declined sharply on the news, signalling that investors have lost trust in the company.
The latest share price decline followed a 24% decline a month ago after MTN announced it had walked away from talks to buy Telkom.
MTN allegedly stopped negotiations because Telkom could not guarantee exclusivity, and there were concerns about Competition Commission approvals.
Telkom has valuable assets, including spectrum, an extensive fibre network, and a great tower and property portfolio, but the market has no trust in the company to unlock value.
Nick Kunze from Sanlam Private Wealth said there are many reasons the market does not like Telkom and why shareholders are dumping the stock.
“As much as its mobile business has grown, its recent earnings missed estimates, and it will battle to compete with the big guys,” Kunze told Financial Mail.
“Now that MTN has walked away, I don’t know what’s in the offing. A lot of the premium in the share price was due to takeover talk, and that’s unlikely to come back any time soon.”
Ashraf Mohamed from Cornerpiece Capital said Telkom started to move away from its legacy business with new fibre products.
However, competition increased with Vumatel, Vodacom, MTN, and Rain offering affordable broadband access, and Telkom has lost momentum.
“What was a fast-growing business with a high margin is slowing. It raises the question of where growth for Telkom is going to come from,” he said.
“What will management tell us next week when they release their results? My expectation is no good news.”
Mohamed sees Telkom as a value trap with a fair value between R25 and R30 per share.