Telkom shares soar on more demanding investor expectations
The rally could be explained by a mooted property deal or EOH’s woes, an analyst says
Shares in Telkom, the partially state-owned network operator, have climbed to their best level since June 2017 thanks to loftier expectations from investors about the group’s outlook.
The stock was 1% up at R79.29 on Monday afternoon, giving it a market capitalisation of R40.4bn. The government’s 40.5% stake was worth R16.3bn.
Since the start of trade on April 8, Telkom’s shares have rallied 8.5%.
The other major telecoms players also saw positive sentiment in trading on Monday. Vodacom was up 0.2% for the day with MTN’s shares reaching its best level since the mobile operator ran into regulatory troubles in Nigeria in August 2018, rising 1% on Monday morning. This is after its e-commerce associate - Jumia - soared in its first trading day in New York on Friday.
Mergence Investment Managers portfolio manager Peter Takaendesa said the share price movement “remains a surprise for now”.
“There has been some market talk of a potential transaction on their property portfolio, but Telkom is not trading under cautionary, as required by the JSE for large corporate transactions,” Takaendesa said.
Telkom CEO Sipho Maseko told Business Day in November the telecommunications group would consider spinning off its property assets, which have an insured value of R24bn, as a “mega” real-estate investment trust (Reit).
The group’s Gyro subsidiary manages Telkom’s portfolio of 1,332 properties, including offices, client-service centres, residential dwellings and land parcels. It has earmarked 40 properties for development, including housing projects.
Maseko said at the time Telkom had been searching for ways “to unlock value” since its properties had been ignored by the market.
Takaendesa said there had also been speculation that Telkom, via its information technology unit BCX, was benefiting from EOH’s woes.
“But that’s not enough to justify the share price performance over the past six months, as EOH is actually aggressively pricing on contracts to keep customers,” he said.
Telkom’s lower dividend yield and raised share rating “reflect higher investor expectations on growth or value unlock”.
However, this meant the stock’s risk-reward profile had become less attractive than in the past, when return expectations were far lower, Takaendesa said.
EOH, which is due to publish results on Tuesday, warned on Friday last week it would report a loss for the six months to January as it impaired the value of certain assets.
The company, which is reviewing its past bids for government contracts, recently lost its status as a licensed reseller of Microsoft products.
In fibre, Telkom continues to dominate as the largest provider in the country but Remgro’s investments in the telecoms sector are making it a more meaningful competitor. Regmro is currently at war with one of its subsidiaries over its bid to acquire a controlling stake in Vumatel, which provides underground fibre broadband infrastructure in residential areas. The case is currently being heard by the Competition Tribunal.