Telkom investors voice concern
The investment community is concerned about the strategy of Telkom, as the firm enters a new era without its cash cow Vodacom.
Investors raised concerns this week about the poor performance of Telkom’s Africa business – especially its Nigeria-based subsidiary, Multi-Links, which made losses of R1.76 billion – and Telkom’s defend-and-grow strategy, unveiled more than a year ago.
Analysts at the company’s presentation this week said Telkom should provide more details of that strategy.
Telkom executives acknowledged that it would be a tough road ahead, adding that Nigeria would be given top priority.
It unveiled a cost-cutting strategy named Telkom Renaissance, aimed at saving R2bn in the next three years and improving the company’s customer service standards, among other things.
Jan Meintjes, a portfolio manager at Gryphon Asset Management, said that after spending “in excess of R6bn on Multi-Links, one should expect the business to be earning R1.5bn a year – this is a long way off.”
Meintjes said: “This is not the first restructuring we have seen at Telkom. Merely moving chairs around and changing names on doors will not work. Telkom is a valuable asset, but it needs efficient management to unlock the value.”
Irnest Kaplan, a managing director at Kaplan Equity Analysts, said investors were right to be concerned. He said: “We have concerns with management. I hope they pull it off.”
But Mark Ansley, a portfolio manager at Cadiz Asset Management, believed it was not all negative at Telkom.
He said management had been distracted by the sale of its shares in Vodacom and Telkom Media from concentrating on the defend-and-grow strategy and Multi-Links.
Ansely added that excluding once-off costs, margins were good, although lower.
Lindsey McDonald, a telecoms analyst at Frost & Sullivan, added that the key was for Telkom to communicate effectively to potential and existing customers the breadth and depth of its expertise.
“It is a challenging time ahead, but the firm is reorganising and streamlining its operations, which should lend itself to accomplishing some of the growth goals,” he said. “This is not a process that is achieved overnight, and it is likely that it will take the next two years to bed down new processes.”
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