Sneeky - try here
http://www.fin24.co.za/articles/default/display_article.aspx?Nav=ns&ArticleID=1518-1789_2056397
'Stop moaning' about Telkom
17/01/2007 14:39
By: Vic de Klerk
Johannesburg - Much noise is still being made about Telkom and its successes and failures. The noise is sometimes so bad that investors don't always see the merits of the share or the opportunities it offers.
Last week, the price of the old giant - which still has a taint of the old public service about it - again increased to R150, and this time it looks as if it will reach R175 with ease.
Let's for a moment set aside all the negative sentiment and reports concerning Telkom's late entry into the Africa market and the arrival one day of a new fixed line competitor in SA, and look instead at what Telkom really is.
In other words, start with MTN, currently in the process of becoming Africa's cellphone giant - and also in the Middle East. MTN's market capitalisation is currently R153bn.
Vodacom apparently has more subscribers in SA, but in total it's smaller than MTN. Vodacom isn't listed, but it isn't unrealistic to estimate its value at around R140bn.
Vodacom connection
Just a small piece of information for all those who complain about Telkom's expensive ADSL service and for other commentators who may have forgotten: Telkom owns 50% of Vodacom. After VenFin recently sold its best asset - its 15% interest in Vodacom - Britain's massive Vodafone now holds the other 50% interest in Vodacom.
At its current price of R150/share, investors only set a total price of R81bn on Telkom. Deduct the R70bn that Telkom's 50% interest in Vodacom could be worth and it looks as though investors feel that all Telkom's fixed line assets are only worth R10bn. That's ridiculous.
Telkom certainly no longer needs its investment in Vodacom. It could perhaps sell it to Vodafone, which could itself soon be taken over by a major US company. It and Vodafone could perhaps decide to list Vodacom (SA) on the JSE.
Such a listing would in fact kick off among the Top 10, presumably knocking Old Mutual out of eighth spot. Telkom could then distribute its Vodacom shares to its own shareholders.
Those are just a few possibilities; but whatever the answer, Telkom's fixed line assets are worth a lot more than R10bn - and that's why the share's a good buy.
'Excellent buying opportunity'
The share is currently trading at a very attractive price:earnings ratio of less than 9, according to the expected profit for the financial year to March 31 2007.
Analysts also expect that it will declare a special dividend of possibly as much as R10/share. That pushes its forward dividend yield at the current price up to more than 6%.
Graph aficionados say that Telkom's latest price movement confirms an excellent buying opportunity. The price already sent a strong buying sign early in December last year when it broke through the R135/share level.
The message is clear: stop complaining about Telkom. See it rather as a buying opportunity, even if you missed the increase from R135 to the current R150/share.
Buying into Telkom
There are also quite a number of derivatives on Telkom available. Those offer the bolder investor the opportunity to make use of the power of financial gearing for more profit if the share price does in fact start moving towards R175. The "turbo" instalment share (JSE code TKGSTA) issued on Telkom by Standard Bank looks very attractive.
By paying only R65 now, a prospective investor can buy a full Telkom share and enjoy all the benefits - including the possible special dividend - just like an ordinary shareholder.
The second instalment of R100/share is only payable in December. If Telkom's price rises to R175 between now and year-end 2007 and it pays a total dividend of R10/share, the return on that investment would be more than 30% for the year.
If Telkom decides to do something dynamic with its 50% interest in Vodacom, the value of the instalment share could easily double. That's the kind of chance that bold investors like.
