The investment community is concerned about the strategy of Telkom, as the firm enters a new era without its cash cow Vodacom.<\/p>\n
Investors raised concerns this week about the poor performance of Telkom’s Africa business – especially its Nigeria-based subsidiary, Multi-Links, which made losses of R1.76 billion – and Telkom’s defend-and-grow strategy, unveiled more than a year ago.<\/p>\n
Analysts at the company’s presentation this week said Telkom should provide more details of that strategy.<\/p>\n
Telkom executives acknowledged that it would be a tough road ahead, adding that Nigeria would be given top priority.<\/p>\n
It unveiled a cost-cutting strategy named Telkom Renaissance, aimed at saving R2bn in the next three years and improving the company’s customer service standards, among other things.<\/p>\n
Jan Meintjes, a portfolio manager at Gryphon Asset Management, said that after spending “in excess of R6bn on Multi-Links, one should expect the business to be earning R1.5bn a year – this is a long way off.”<\/p>\n
Meintjes said: “This is not the first restructuring we have seen at Telkom. Merely moving chairs around and changing names on doors will not work. Telkom is a valuable asset, but it needs efficient management to unlock the value.”<\/p>\n
Irnest Kaplan, a managing director at Kaplan Equity Analysts, said investors were right to be concerned. He said: “We have concerns with management. I hope they pull it off.”<\/p>\n
But Mark Ansley, a portfolio manager at Cadiz Asset Management, believed it was not all negative at Telkom.<\/p>\n
He said management had been distracted by the sale of its shares in Vodacom and Telkom Media from concentrating on the defend-and-grow strategy and Multi-Links.<\/p>\n
Ansely added that excluding once-off costs, margins were good, although lower.<\/p>\n
Lindsey McDonald, a telecoms analyst at Frost & Sullivan, added that the key was for Telkom to communicate effectively to potential and existing customers the breadth and depth of its expertise.<\/p>\n
“It is a challenging time ahead, but the firm is reorganising and streamlining its operations, which should lend itself to accomplishing some of the growth goals,” he said. “This is not a process that is achieved overnight, and it is likely that it will take the next two years to bed down new processes.”<\/p>\n