Stock in TeleMasters jumped 10.17%, to 65c, yesterday, after the company reported increasing its net profit 15 times for the nine months to June when compared with the year to June 2012.
TeleMasters ended the day 6c higher, while the JSE's all-share index lost 0.74%. TeleMasters' stock has been on a downward slump since March 2007, when it was around 260c, and hit a five-year low of 34c in April.
The group has been through a tough time as it moves from being a least-cost routing (LCR) provider to a fully-licensed fixed-line telecommunication service provider operating in the corporate segment.
Margin gains
Revenue in the nine months to June came in at R98.7 million, substantially lower than the previous full-year's R171.3 million for the 12 months to September. TeleMasters has shifted its year-end from September to June.
Despite the drop in income, the company reversed its previous operating loss of R5.5 million and reported an operating profit of R654 351. This filtered through to its bottom line as its net profit leapt from R22 707 to R257 080; which is a 15 times gain when annualised.
In the results commentary, the company, which has a market capitalisation of R27.3 million, notes its substantially improved results were achieved despite revenue dropping 42%. It explains the new technology platform has led to a margin increase, with its gross margin growing from 11.54% to 15.48%.
Trimming costs
TeleMasters has been moving its customers onto its own network - Digital Direct - as it moves away from LCR. Several LCR providers were hard hit when mobile termination rates started dropping after the Independent Communications Authority of SA (ICASA) introduced a glide path.
In 2010, ICASA decreed cellular interconnect costs had to drop to 73c at peak and 65c during off-peak times, from March 2011. Last year, rates dropped to 56c and 52c, respectively. At the end of this March, wholesale mobile termination rates dropped to 40c, regardless of the time the call is made.
"The profitability and sustainability of the group has been ensured by the increase of the gross margin and the decrease of operating costs," it says. Operating costs dropped from R25.5 million to R17 million.
Earnings per share gained 1 220%, to 0.61c, while headline earnings per share grew 188%, to 0.49c. Analysts view headline earnings per share as a key indicator of performance, as this matrix strips out unusual or once-off items.
In the six months to March, TeleMasters' revenue dropped to R70.75 million, from R99.6 million. Its operating loss last year of R3.7 million turned into a R107 028 operating profit, and - post-tax - it made a R64 458 gain compared with a R2.9 million loss.
The group ended the year with R4.55 million in cash and cash equivalents compared with R8.4 million last year. It says it has "extremely low debt".
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