Telkom CEO Sipho Maseko. Picture: BUSINESS DAY
Telkom CEO Sipho Maseko. Picture: BUSINESS DAY

Telkom’s shares reached their best level in a decade on Friday, thanks in part to rising interest from foreign investors.

Telkom has been one of the best-performing stocks on the JSE in recent months, with its shares lifting from R49.04 at the end of June 2018 to a high of R87.60 on Friday, the best level since May 2009.

But Telkom’s rise is somewhat puzzling to many investors, according to Mergence Investment Managers portfolio manager Peter Takaendesa.

“It’s now trading at an unusual premium valuation to SA market leader Vodacom,” Takaendesa said. “Investors who like the share are mostly pointing to the potential for value unlock from Telkom’s property portfolio and continuing market share gains in the smaller mobile division.”

Vast property portfolio

In November 2018, Telkom CEO Sipho Maseko said the company would consider spinning off its vast property portfolio as a “mega” real estate investment trust (Reit) to unlock value for shareholders. Its property assets had an insured value of R24bn at the time, or more than half of Telkom’s market capitalisation of R44.1bn on Friday.

With Telkom set to release financial results this week, Rob Pietropaolo, an equity trader at Unum Capital, said: “I think there’s a lot of pre-emptive buying here ahead of the results on Monday”.

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Without any official news from Telkom to explain the share price movement, Pietropaolo said it is likely that the market is anticipating good results. 

Reuben Beelders, chief investment officer at Gryphon Asset Management said there were a number of factors to consider. “Their pricing [for products] seems to be good and they are gaining market share. Relative to the other telcos who have a presence in Africa, their focus is on SA which makes them unique.”

He said it was difficult to pinpoint one factor that was driving up the share price. 

With rumours constantly in the market, Beelders said investors sometimes “buy on rumours and sell on fact”.

Takaendesa said rising foreign ownership could also explain Telkom’s rise. Local ownership of the partially state-owned telecoms company has dipped to about 61.5%, from 65.8% a year ago, according to Bloomberg data.

However, to justify its lofty share rating, Telkom would need to generate more than R8 per share in sustainable cash earnings.

“This will be demanding to achieve given the core fixed-line business is in the decline phase ... the management team has executed very well so far but the low-hanging fruit has largely been harvested,” Takaendesa said.

“I think the results will be critical on Monday. There is always a chance that something unique comes to the fore,” Beelders said.

Beelders said Telkom shares have, in the past, tended to move when it was thought the government was about to sell its shares in the company to raise money.

“It’s possible that there may be something like that factored into the price that we are not aware of,” he said.

Shares in Telkom were 2.8% up for the week, closing at R86.46.

gavazam@businesslive.co.za