Telkom is in deep trouble: analysts

Wayne McCurrie, portfolio manager at Momentum Wealth, has said Telkom is in deep trouble because their “main reason for existing is declining each year”.

Speaking to Moneyweb’s Siki Mgabadeli, McCurrie said “the decline this last year was dramatic in the number of voice minutes”.

He said Telkom is in a difficult spot because it is challenging for the company to find new revenue streams.

McCurrie added that he does not think Telkom’s business model can sustain the share price. “We may see more weakness,” he said.

Also speaking to Business Day TV, McCurrie said it is not clear where Telkom’s future growth will come from.

David Shapiro from Sasfin Securities added that top-line growth is very low, and he would not advise Telkom as an investment.

Greg Katzenellenbogen from Sanlam Private Wealth agrees. Speaking on Business Day TV, he said Telkom’s voice revenues are declining, which means that they must rely on data.

He added that cost-cutting measures at Telkom may also see many experienced employees leave the company.

Chris Gilmour from Absa StockBrokers said the company’s performance is basically a result of cost cutting rather than increasing revenues. “The Telkom business model is flawed,” he said.

“They have neglected their own back yard, as far as landlines are concerned,” said Gilmour, adding that most people use mobile data rather than fixed-line broadband to access the Internet.

Telkom fixed line numbers
Telkom fixed-line numbers

Telkom CEO remains upbeat

Despite this sentiment, Telkom CEO Sipho Maseko remains bullish about the company, saying that its turnaround is on track.

Maseko said they are looking to grow the business through both organic options and suitable acquisitions.

In May 2015 the Competition Commission advised that Telkom’s planned acquisition of Business Connexion (BCX) be approved.

This acquisition should bolster Telkom’s ability to offer IT services and grow its revenue in a field where it was previously weak.

“Telkom is now preparing to embark on the next phase of the turnaround, to position ourselves for commercial sustainability,” said Maseko.

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Telkom is in deep trouble: analysts