Telkom – Ridiculously expensive at R100, but ridiculously cheap at R20

When Telkom’s share price got close to R100 in June 2019 it was ridiculously expensive, but when it got down to R20 to R25 earlier this year it was ridiculously cheap.

This is the view of Nick Crail, senior fund manager at Ashburton Investments, who was speaking to Business Day TV about Telkom’s recent trading statement.

Telkom informed investors yesterday that reported headline earnings per share (HEPS) is expected to increase by 15% to 25% for the half-year ended 30 September 2020.

The company added that basic earnings per share (BEPS) is also expected to increase by 19% to 27% compared to the prior corresponding period.

This was mainly driven by around 16% growth in operating profit thanks to solid growth in group earnings before interest, taxes, depreciation, and amortization (EBITDA).

The earning growth was partially offset by an increase in the effective tax rate from 28.8% in the prior period to 34.8%.

Telkom said its performance was sound despite a difficult trading environment due to the adverse impact of COVID-19 on the economy.

“The mobile business continued its growth trajectory, placing Telkom Mobile solidly as the third-largest mobile operator in South Africa,” the company said.

Telkom added that it focussed heavily on cutting costs to protect its margin, which helped to increase EBITDA by more than 5%.

The company will release its interim results for the half-year ended 30 September 2020 on 10 November 2020.

Telkom’s share price jumped 17.5% on the news, which is a clear indication that the company’s performance exceeded investors’ expectations.

Expert view

Ashburton Investments’ Nick Crail said Telkom is an interesting share because it is not one of the two big telecommunications players – Vodacom and MTN.

“They have a wide offering, but do not have scale or market leadership in any of those areas,” he said.

Telkom has done a lot of restructuring, which Crail said helped the share price to increase up to R100 in mid-2019.

Since then, the share price declined to a low of under R20 after the COVID-19 pandemic hit South Africa.

He said these wild swings give a good indication that investors can expect more volatility in the share price.

“When it got close to R100 I thought it was ridiculously expensive, but when it got down to R20 to R25 I thought it was ridiculously cheap,” said Crail.

“Telkom’s trading statement looks good on the face of it, which surprised investors on the upside.”

He said even in a tough environment, Telkom’s share should not be trading at R20 to R25.

Telkom share price

The chart below shown Telkom’s share price this year.

Nick Crail comments on Telkom

Now read: Telkom expects big earnings increase

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Telkom – Ridiculously expensive at R100, but ridiculously cheap at R20