Telkom cost cuts pay off as shares jump most in a single day
A tight check on costs is poised to pay off for Telkom as the telecoms operator flagged higher earnings in the middle of the deepest economic downturn in generations.
Shares in Telkom, which is 40% owned by the government, logged their biggest one-day gain on Tuesday after the fixed-line operator said half-year earnings likely grew by almost a quarter as its aggressive cost-cutting push helped offset a barely growing top line.
Telkom has been slashing expenses across the group as part of its broader transformation journey from being a primarily fixed-line phone operator to becoming a modern telecoms player, and to cope with falling demand during the coronavirus pandemic.
The company, which has shot past Cell C as the third-largest mobile operator, said headline earnings per share (Heps) is likely to be between 15% and 25% higher in the six months to end-September.
Telkom said revenue was flat during the period, suggesting that the bottom-line growth came from cost cuts in the 2020 financial year. It took R1.2bn in one-off costs related to the restructuring programme during the period.
“Group revenue showed resilience in the face of this pandemic, remaining broadly flat compared to the prior period. The mobile business continued its growth trajectory, placing Telkom Mobile solidly as the third-largest mobile operator in SA,” the company said.
While the company has been keeping a tight lid on costs to reckon with the reality that fewer customers are using the fixed-line network to make phone calls, it has also been investing heavily in its mobile phone and data network to ensure its long-term survival.
Shares in Telkom closed 17.5% higher in afternoon trade on Tuesday at R29.95, their biggest one-day gain, giving the company a R15.31bn market value. Sector peers Vodacom and MTN were also up 1.1% and 4.44% respectively on the day.
IG Markets senior analyst Shaun Murison said: “Telkom’s significant outperformance of the broader market shows investor favour at the update. Strong double-digit earnings gains in a market where growth has been anaemic is encouraging to investors.”
The Covid-19 pandemic has presented difficult dynamics for the telecoms sector, which may have to grapple with bad debts as industries bleed jobs and companies go out of business despite the sector’s services being more essential than ever.
Telkom said earnings before interest, tax, depreciation and amortisation (ebtida), a measure of operational profitability that strips out expenses that might obscure a company’s underlying performance, increased more than 5% to R5.6bn.
Update: November 3 2020
This article has been updated with information and comment throughout.
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