Cooler as 8ta
Telkom (still trying to touch tomorrow, which is proving harder than touching their competitors) out with a trading update this morning, it is most certainly a complicated thing, that is for sure. And the reason why it is complicated is because Vodacom was unbundled from this comparative reporting period, the six months to end September 2010.
And there was a special unbundling dividend paid remember, Telkom wanted to keep the rest for expansion and new projects. New projects, and credit to them for making a go of it, the 8ta launch.
I have a good friend who works there, at 8ta, I should interrogate him a little more when next I see him. The biggest “selling point” is where you can get free calls from your contractual mobile to one nominated Telkom number. That is by far and away the best selling point, IMO.
I would even think of getting one, paying a fixed rate of 90 ZAR a month for 24 months, get a free handset and then call ones parents (who still love their land line) as much as possible. I have been asking around, please do the same, do you know anyone who has a contract yet?
I suppose that the proof of subscriber numbers will be revealed in their first set of numbers which as per the SENS announcement we should see 22 November. So the actual Telkom numbers, what are they set to be?
Here is the best measure looking back and for the purposes of looking ahead: “Normalised BEPS from continuing operations are expected to be between 0% and 20% lower than the normalised BEPS of 279.0 cents per share for the six months ended 30 September 2009.” BEPS of course would be Basic earnings per share. So if you were to go in the middle of the range, ten percent lower is around 250 cents per share for the half.
Which still makes Telkom incredibly cheap at 36 ZAR a share. The market has sent them lower by nearly two percent this morning, but and this is a big but, the overall market is down half a percent. So, they are underperforming the market today. But the market is not convinced, the stock has not only underperformed the broader market today, but their peers have left them in the dust.
Over exactly a year, the TKG share price is down nearly 13 percent, whilst the Vodacom share price is up just over 33 percent. The MTN share price is up only 12 and a quarter percent over the same time frame, still a wide gap on Telkom, but being smoked by Vodacom.
But, how do you measure Telkom versus MTN over a five year period?
OK, the simplest way which we thought would be to take the 1 Vodacom share, for each Telkom share (at the unbundling) plus the exit dividend and then compare. That should be fair enough.
OK, five years ago, the MTN share price was 55 ZAR a share, the Telkom price was 71 ZAR a share. At the biggest divergence over the last five years, in May 2008 when all the noise around deal activity with Indian rivals was taking place, the MTN price traded as high as 163 and a half ZAR, Telkom was 66 ZAR at the time.
Now, MTN trades at 127.9 ZAR, up 132 percent over five years, Telkom is down 47 percent over five years to 36 ZAR roughly. But add back the unbundling dividend of 19 ZAR and the Vodacom share price, 69.80 ZAR current and you get to roughly 125 ZAR. Now that neglects the good dividend flow from Telkom when they still owned half of Vodacom, their cash cow, I guess purely on price MTN has beaten what you got from Telkom, over five years.
So, Telkom, excluding this special dividend has paid out (with a whole lot of specials) has paid an astonishing 33 ZAR. Over the same time, since the beginning of 2006, MTN have paid a much smaller dividend, a little over 8 ZAR. Add those back (plus the recent Vodacom dividends of 465 cents) gives you a total Telkom return of 163 ZAR over five years. MTN is then around 136 ZAR. Even on that basis, MTN has outperformed the combined entity (Telkom + Vodacom + extraordinary divs), including ordinary dividends.
The question is now, as at today, would you buy Telkom shares in the market?
No. Sliding fixed line revenue won’t be made up with the 8ta revenues in my opinion. Why would Telkom just waltz into the market and expect to cut Cell C at the knees, when the third operator has struggled along over the years?
Time will tell, but I suspect that the dividend payments won’t be as awesome from Telkom, their recent history of blasting through cash in projects that did not work out, Telkom media (over a billion ZAR) and Multi-links (they have written down the asset by another R200 million today) and the start-up costs of 8ta, R205 million ZAR, worry me. No thanks.
And government interference? They are most entitled to fiddle as much as they want in this case, they own 40 percent of the business. Government and business don’t mix well in almost any environment, this is one reason not to own the company.
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