How low can Telkom go?

Telkom, which has lost flavour with analysts, saw its share price rebound on Friday by 53c to R32.03 after Thursday’s 5% slump due to the company’s poor future prospects.

Among 16 analysts polled by Bloomberg nine rate the share as a sell, with only one analyst advising a buy. Five rate it as a hold. These ratings were however done before the latest trading statement. In stark comparison, MTN and Vodacom have received strong buy ratings.

Telkom issued a detailed trading statement on Thursday in which it warned that its earnings per share would dive by 40% for the first half of the financial year.

The telecoms company also attributed the earnings drop to initial losses from mobile operator 8.ta and the sale of its Achilles heel –  Nigerian subsidiary Multi-Links.

It also warned of an impairment loss of approximately R450m for its pan-African corporate data provider business, iWayAfrica.

Telkom said it expects the operating environment to remain challenging due to low economic growth and volatile markets.

IDC’s ICT analyst Spiwe Chireka says Telkom needs to apply more focus to its data revenue stream.

“Data offerings still present a key area of growth for Telkom. The company is in good standing here as it has the necessary infrastructure in place to provide faster and a more stable internet connection than other wireless offerings, which often have limitations depending on the type of device that is used,” said Chireka.

ICT Industry Analyst Vitalis Ozianyi from Frost and Sullivan agrees with Chireka, but adds that whilst ADSL presents a lot of revenue growth opportunities for Telkom, the company needs to look at offering services alongside its connectivity, like IPTV or video-on-demand (VOD).

Interestingly on Friday Telkom launched uncapped fixed-line broadband services as it plans to launch video-on-demand (VOD) within the next year.

According to TechCentral, Telkom “is at an “advanced stage” of discussions with a number of local and foreign content providers that will put it on a “collision course with incumbent pay-TV operator MultiChoice”, which is “also planning to introduce internet-based VOD soon”.

With the company’s first half results expected to be released on November 22, it will be interesting to see what progress it has made on VOD.

Source: Moneyweb

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How low can Telkom go?