Sipho Maseko. Picture: BDTV
Sipho Maseko. Picture: BDTV

Telkom’s share price recovery hit a snag last week, with the stock retreating 7%, but some analysts say it may just be taking a breather.

From a low of R47.50 in September 2018 the stock rallied 44% to reach R68.57 on January 11 — the best level in a year and a half. But the stock pulled back to R64.07 by Monday’s close, with some analysts saying the share was now fairly priced or even expensive.

JP Morgan analyst JP Davids has downgraded his recommendation on Telkom to “neutral” from “overweight” and set a price target of R68 a share, according to a Bloomberg filing last week.

At the same time, Investec analyst Niel Venter downgraded his recommendation to “sell” from “hold”, with a price target of R60. But other analysts believe the stock still has positive momentum.

“From a technical perspective, we have, over the last week, started to see a retracement,” said Lester Davids, a trading desk analyst at Unum Capital. But the share “may be entering a period of short-term price consolidation — sideways to slightly lower — before resuming its bullish trend”, Davids said.

PSG Wealth portfolio manager Schalk Louw said Telkom had been “totally undervalued” prior to the rally, and the stock was still not expensive despite its gains.

“Momentum is behind the stock now — so for the ‘momentum’ fund managers, this is starting to hit the right notes. And if the momentum continues and Telkom pulls off a merger with Cell C, I definitely wouldn’t be shorting Telkom,” said Louw, who is not bullish about the telecommunications sector in general.

In December, sources told Business Day Telkom was eyeing a full takeover of Cell C via a cashless merger.

Louw also said Telkom was relatively well placed in that it was financially healthy and still had a near monopoly in the fixed-line market, which was “far from dead”.

Cratos Capital portfolio manager Ron Klipin said while the share had so far struggled to break through the R70 resistance level, the recent rally suggested the market was more optimistic about Telkom’s prospects.

Telkom is mulling an unbundling of its vast property portfolio, and the network operator is making progress with bundled deals and with its small but growing mobile business, Klipin said.

Telkom CEO Sipho Maseko told Business Day in November the company would consider spinning off its property assets, which have an insured value of R24bn, as a “mega” real-estate investment trust (Reit). The network operator had a market capitalisation of R32.8bn on Monday.

Further, Klipin said, the mooted tie-up with Cell C would help Telkom’s mobile business reach critical mass and higher margins, even if the deal would be difficult to implement.

However, the fixed-line unit remained “under pressure” and there may be some lingering concerns in the market that the cash-strapped SA government might offload Telkom shares. The state owns about 41% of the network operator.

“It looks like that has been put to bed for the time being, but we need to wait for the next budget,” Klipin said.

The government said in 2018  it was no longer looking to sell part of its stake. But owing to strained public finances and managerial changes in key departments, some in the market want fresh reassurances that Telkom is not on the chopping block.


hedleyn@businesslive.co.za