Telkom CEO Sipho Maseko. Picture: MARTIN RHODES
Telkom CEO Sipho Maseko. Picture: MARTIN RHODES

Telkom’s shares rose as much as 13.6% to R98.20 on Monday, more than any full-day gain since June 2008, after the partially state-owned telecoms group reported better-than-expected annual earnings thanks to strong growth from its mobile business.

Buoyed by rising foreign ownership and optimism that Telkom will unlock value from its vast property portfolio, the company’s stock has more than doubled in value since reaching a low of R47.50 in September 2018. On Monday, the stock closed at R90.

Group CEO Sipho Maseko told Business Day: “I’m hoping that people are beginning to understand the story in terms of what is the long-term value we are trying to create. We look at the share price but it doesn’t inform our strategy. We remain very committed to our strategy.” 

Maseko, who has been at the helm for more than six years, has returned Telkom to profit through a major restructuring of the business, which included job cuts. He said “shareholders who are with us for the long term will be rewarded because we’re not taking a short-term view of the market”.

Telkom CEO Sipho Maseko speaks to Business Day TV about the group's better-than-expected earnings report for the year to end-March.

Reacting to this the share price rally, Ruhan du Plessis, a technology analyst at Avior Capital, said it was “difficult to pinpoint one thing” and that made it hard to predict if the rally would continue. 

“Local investors have steered clear of Telkom. I think SA investors are still trying to figure out how Telkom has rallied this much,” Du Plessis said.

On Monday, Telkom reported a 5.3% rise in operating revenue in the year to end-March rose 5.3% to R41.8bn. Earnings and earnings before interest, tax, depreciation and amortisation (ebitda) grew 8.5% to R11.3bn. According to Bloomberg data, analysts expected ebitda of R10.9bn.

Profit after tax rose 11.5% to R3.3bn and the group said it would pay a final ordinary dividend of 249c, taking the full-year dividend to 362c, a 2% increase.

Telkom said mobile service revenue surged by 58.3% thanks to an 85.9% growth in active subscribers to 9.7-million customers.

Du Plessis said SA investors favour cash flow and are particularly concerned about Telkom’s underlying growth. Apart from a strong performance in the mobile business, other parts of the business, particularly fixed voice, are in decline. 

The mobile business helped offset declines in Telkom’s traditional fixed-line operations, which accounts for about half of total revenue. Revenue from the group’s fixed business fell 7.9%, with  fixed-voice and interconnection revenue declining 14.3%.

Maseko said in a presentation that the group had been close to pulling the plug on its mobile business several years ago, but that unit is now a key growth driver and margins are improving.

Beyond the mobile service, Maseko expects growth to be driven by the group’s super-fast fibre, 4G and 5G data network rollout, BCX’s cloud services and the small- to medium-sized enterprise (SME) sector.  

“Number one, it’s going to be the combination of 4G and 5G. We currently have a very strong 4G presence. We are one of the undisputed leaders in 5G. Secondly, on the BCX side is the cloud. We can make cloud services available to large enterprises,” he said.

Commenting on the SME business, Maseko said: “The real engine for growth in this country will be SMEs. We provide services to about 400,000 of those through connectivity services, with a few having marketing services.”

Du Plessis said, “I think the company is well positioned for 5G because it has more 4G spectrum in the 2,300MHz band and less exposure to the 2G legacy voice base.” 

Where MTN and Vodacom already have a large customer base, Du Plessis said Telkom has the infrastructure and spectrum advantage. “Now it is actually winning the customer as well.” 

Shaun Murison, senior market analyst at IG, said, “The group has been growing its market share in the mobile space.”

gavazam@businesslive.co.za
hedleyn@businesslive.co.za