Telkom CEO Sipho Maseko. Picture: ARNOLD PRONTO
Telkom CEO Sipho Maseko. Picture: ARNOLD PRONTO

Telkom surprised the market with a maiden interim dividend, which sent the share price up 5.33%. The group also revised its dividend policy that will now see it pay 60% of headline earnings as annual dividends following a strong performance.

The 40% state-owned telecommunications operator’s share price closed at R62.89.

Management has spent the past three years realigning the business by, among other things, cutting staff costs and investing heavily in fixed and mobile broadband infrastructure.

Aslam Dalvi, associate portfolio manager at Kagiso Asset Management, said the higher dividend and new dividend policy was a positive surprise and a reflection of management’s "successful execution of its strategic goal of de-risking the business" and creating a more stable growth platform.

Telkom’s headline earnings per share rose 20% to R3.36c. Operating revenue increased 20.6% to R20.2bn, lifted by the mobile business and the inclusion of Business Connexion. Telkom’s mobile network business recorded its first earnings before interest, tax, depreciation and amortisation of R214m from a loss of R37m the previous corresponding period.

CEO Sipho Maseko said the group had delivered a solid performance in a tough economy where businesses continued to operate under pressure.

He expects cash flow in the mobile business to break even in a year’s time.

Telkom’s performance was considerably ahead of market expectations, said Mergence Investment Managers’ Peter Takaendesa. A further positive surprise was improved results in Telkom’s previously struggling mobile business, he said.

"The business generates good cash flow and the balance sheet is undergeared, so there is very low risk to the dividend policy over the midterm," Takaendesa said.

Fixed-line voice revenues continue to decline as more people switch to mobile. Fixed-line voice usage and subscription revenue decreased 4% to R7bn, driven by competition, mobile substitution, a 7% decline in the number of lines and customers migrating to lower-value bundled offerings.

"The challenge remains the loss of fixed lines in the consumer market and cyclical pricing pressure from business customers in a tougher economic environment," Takaendesa said.

Telkom was targeting a capital expenditure of 18% of revenue, with the bulk of the money going towards fibre infrastructure, Maseko said.

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