Testing times ahead for Telkom
NOW that Telkom has paid off the last of the proceeds from its sale of Vodacom, it might have a tough time keeping shareholders interested in the company, analysts say.
Yesterday, Telkom paid out a combined special and ordinary dividend amounting to R1.95-billion, largely arising from the May unbundling of Vodacom.
Telkom sold 15% of its 50% stake in South Africa’s leading mobile operator for R22.5- billion to UK-based Vodafone and floated the rest on the JSE in May.
The payout consisted of a R1.15/share ordinary dividend amounting to R600-million, as well as a R2.60 dividend, adding up to R1.35-billion — a combined R1.95-billion.
Over the past month, Telkom’s share price has rallied ahead of the dividend payout after a massive drop of more than R20/share in the past three months. Towards the end of April, Telkom was trading at more than R60/share but dropped to about R39/share, due to the Vodacom deal, and further down to R31.50 last month.
In the second half of June, the share price began its rally to about R43 before trading “ex-div” last Monday when the company took the dividend off its books.
Chris Wood, a portfolio manager at Prudential Portfolio Managers, said the share price didn’t fall by the full dividend amount as it was trading at about R40/share throughout last week.
“Telkom has declared a new dividend base of R1.15, which is low,” Wood said. “Considering that it’s going through a period of heavy investment, it will be difficult for the company to offer anything much higher than that.”
Wood said Telkom would only be able to pay shareholders a maximum of R1.50 next year. He said Telkom’s dividend yield was low, compared to other companies with similar growth prospects such as Tiger Brands.
“Unfortunately, Telkom wants to sell itself as a growing company, but I would prefer to see it focus on cost management,” he said. “They’re not alone in the worldwide trend of fixed-line operators experiencing falling fixed-voice revenues.”
He said he was sceptical about Telkom’s Nigerian mobile operation Multi-Links, a R2.3-billion acquisition made in 2007, which this year recorded a dismal fall in average revenue per user from 32 to 9 and a R1.7- billion net loss.
Dobek Pater, telecommunications and market analyst at Africa Analysis, however, felt that Telkom still had some strong fundamental qualities in the form of South Africa’s biggest fixed-line network.
“Telkom’s traditional fixed-line service is getting competition from mobile voice operators, but it’s moving into IT service to big corporate clients,” he said. “The directors might have been too pre-occupied with the unbundling and have not rolled out the wireless network as fast as it would have hoped.
“Now that the slate is clean, one would hope that it can move quicker with its roll- out.”
Telkom share price discussion
Business Times
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