Telkom soars on turnaround hopes

The counter has added 185% since May on the expectation that the company’s new management team, under Sipho Maseko, is on track to deliver a promised turnaround. By Duncan McLeod.

Sipho Maseko

Sipho Maseko

Telkom’s share price touched a fresh 52-week high on Monday as investors continued to pile back into the company on the expectation that it will begin to deliver on a promised turnaround in its fortunes in 2014.

In intraday trading on Monday, Telkom was trading as high as R34,03/share, up by nearly 6%. The counter has added almost 15% in the past week alone, taking its market capitalisation to R17,6bn, a near doubling from a year ago.

By way of comparison, rival MTN has added 21% over the past year, while Vodacom is trading just 8,5% higher. However, over three years, MTN and Vodacom have delivered far better returns to investors.

Since Telkom’s share priced reached its all-time low of R11,93 in 6 May 2013 — a month after former Vodacom group chief operating officer Sipho Maseko took the reins at the partially state-owned telecommunications operator — it has gained a staggering 185%. That means that R10 000 invested in Telkom just eight months ago would now be worth R28 500.

The share is now approaching levels last seen in 2010, when the company disposed of its stake in Vodacom to the UK’s Vodafone and to Telkom shareholders. Telkom group head of strategy Miriam Altman described the decision, taken by a previous management team, to sell Vodacom as one of the company’s biggest mistakes.

Telkom has engaged in a number of failed ventures over the past decade, including pumping hundreds of millions of rand into a failed attempt to build a rival to MultiChoice’s DStv and more than R10bn into Multi-Links, a failed Nigerian telecoms business.

Monday’s share price gains come after a report by Bloomberg, a wire news service, that Maseko had said in an interview that he planned to retrench as many as a thousand managers and reduce Telkom’s staff of 21 000 people by a third within the next five years.

However, Maseko on Monday appeared to attempt to allay concerns over his earlier remarks, telling Business Day that details of the restructuring, including the number of jobs that would be affected, had not been finalised.

Top of mind for Maseko is finding a way to reduce ongoing losses at Telkom’s mobile business. The plan to “de-risk” the loss-making Telkom Mobile could lead to a transaction with rival MTN, TechCentral reported in November. The two operators are in sensitive discussions about a possible deal, two separate and well-placed sources said at the time.

Ironically, MTN considered an acquisition of Telkom in 2007, but backed away. More recently, Telkom entered into a national roaming agreement with MTN, allowing it to use the latter’s infrastructure in areas where it does not have coverage.

Maseko said in November that whatever deal was reached, it should reduce Telkom Mobile’s “capital appetite”.  — (c) 2014 NewsCentral Media

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  • Gladiator

    On the face of it wonderfull but on the negative and quick reality check a huge problem as Telkom governed by the Constitution of South Africa and sections of the PFMA make the appointment by Maseko of the Boston based turnaround company Bain irregular as the appointment was made without any tender process followed making the appointment illegal or is Maseko going to pay the R80 million cost from his own resources. The law remains the law and no person nor company can be impugned from it. Even the Unions are currently forced to be negotiating with representitives of company Bain in this matter. There seems to be interesting times ahead watch this space. Another Telkom Media and MultiLinks fiasco in the making which ultimately impacts on the taxpayers who foot 40 percent of the bill.

  • Gladiator

    One needs also to investigate is this not the same Bain and Co which did the turnaround SAA debacle selling off assets and paying everyone huge bonuses. I only ask! !!

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    In many ways, it’s too late for Telkom already. They are a shadow of the company they once were. All that the current CEO is doing is cleaning up the mess made by the previous management. They have already lost chunks of the market to more flexible competitors, and are unlikely to regain it ever.

    Their best hope remains a retreat to basic markets, and preferably a split between their wholesale division (leasing their facilities to others, including, importantly, local loop), and a retail division that exits mobile, Africa, and other markets they have dabbled in.

    Sadly, Telkom’s biggest strength (its people) is also its biggest weakness – they remain heavily unionised, and the remaining management is tired and battered from years of internal issues (and the current planned layoffs are not going to help), not to mention old – they have failed to attract the young, aggressive managers their competitors have, and it shows in their approach to customers.

    That said, there would really be hope for this turnaround if it weren’t for the largest shareholder. I predict a rapid reversal as soon as the CEO tries to implement anything that shareholder doesn’t like (such as job cuts, or worse, a strategic partner). Then it will be just a matter of time before they ditch him as well.

  • Dave Baker

    Telkom is listed and not a government department. (despite effective government control).
    Therefore it isnt governed by the PFMA and isnt legally required to go out to tender.

    There may be internal policies that require a tender but I would imagine the Board can override the internal policy

  • Gladiator

    Hi Dave do the trouble of looking at the PFMA and look at major public entities you will find Telkom listed as a schedule 2 public entity number 19 on the list. Then do the trouble and look up Protocol on Corporate Governance in the Public Sector and marry the two and vola they match. Telkom are exempted by approx 29 items but they are bound by the balance as well as the Constitution of South Africa section 217. Maybe with these facts you will realise that the poor tax payer pays 40% of all the financial mishaps of this institution. As much as they would wish to be above the law they are not.

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