Blue Label and Telkom beat mobile operators’ share gains
While the performances of Vodacom and MTN have been disappointing, with warnings this may continue well into the first quarter
The share prices of Blue Label Telecoms and Telkom have outperformed those of the mobile network operators in 2016.
With earnings from both Blue Label and Telkom expected to remain relatively strong in 2017, analysts still expect good share price growth from the two, although at lower levels.
Blue Label is in the process of buying a 45% stake in SA’s third-biggest mobile network operator, Cell C. This will result in Blue Label, which distributes prepaid vouchers and starter packs on behalf of mobile network operators, competing with its clients.
The company’s share price has gained 55% since January.
Mergence Investment Managers portfolio manager Peter Takaendesa said Cell C’s prospects were still clouded by its relatively weaker balance sheet, even after the Blue Label transaction, and "technically they can’t get any preferential treatment from Blue Label as that will anger other suppliers, MTN and Vodacom".
Telkom’s stock has increased 11.15% so far in 2016 on the back of strong growth following the successful implementation of its turnaround strategy.
It declared its maiden interim dividend and its mobile network subsidiary, Telkom Mobile, broke even for the first time since its launch in 2010.
Electus Investments equity analyst Mish-al Emeran said that for Telkom, the "low-hanging fruits have been picked and, looking ahead, the challenge is to grow the top line, which will not be easy".
The performances of Vodacom and MTN have been disappointing, with warnings that this may continue well into the first quarter.
Earnings growth from Telkom and Blue Label were expected to remain relatively strong, driven by ongoing restructuring, and organic and acquisitive growth. But the share price performances were not likely to be as good as 2016 given that price-earnings ratios were higher, Takaendesa said.
Vodacom and MTN were likely to report weaker earnings growth — at least in the first half of 2017 — driven by weaker economies, increased competition and a stronger rand.
"We expect MTN’s share price to start to recover slowly as the restructuring efforts under way start to position the group for stronger earnings growth into 2018," he said.
MTN recently hired a new executive team, including a new CEO, who will start in the first quarter of 2017