Telkom shareholders showed confidence in the fixed-line operator this morning as they passed a special resolution granting the company general permission, by a 98.9% vote, to acquire its shares on the Johannesburg Stock Exchange (JSE).
The special resolution was part of the proceedings at the company`s thirteenth annual general meeting (AGM) in Midrand.
The approval is valid until the next AGM and will not extend beyond 15 months from the date of the registration of the special resolution.
The passing of the special resolution indicates that the company is confident that it will do well and shares will go up, says BMI-TechKnowledge MD Dennis Smit. He says it`s often in the company`s best interests to do so and all stakeholders stand to benefit from such confidence.
The move is especially noteworthy given that the second national operator will soon be licensed and government is putting pressure on service providers to lower tariffs, he says. There has also been an internal challenge within the operator with the appointment of Papi Molotsane as CEO and the suspension of three top executives.
It is not unusual for large companies to ask at their AGMs for permission to buy back their shares, a JSE analyst says.
"They do this because they want the option to do so in the future; it does not mean they will do so right away," he says.
Companies buy back their shares when either they have an excess of capital and have to find ways to get a good return on investment and their share price is trading at a discount to fair value, the analyst says, or when they want to find a way to return cash to shareholders without paying secondary tax on companies.
"Last year Telkom issued a special dividend to shareholders that must have been taxed heavily. This year they are still sitting on a pile of cash they have to do something about," he says.
The analyst does not believe Telkom`s share price is trading below fair value, but points out that in the telco`s March results it had R3 billion in cash.
"I expect this to grow to about R7 billion at the end of the 2005/06 financial year considering the cash generation abilities of Telkom," he says.
The Telkom share price was little changed in late afternoon trade at R121.50.
Share
