Telkom`s timing questioned

By Paul Vecchiatto for Telkom

Cape Town, 13 Apr 2006

Investment analysts have questioned the value of Telkom presenting its strategy during the group`s closed period.

Analysts say while the announcement resulted in some short-term losses for the share, they believe the fundamentals are still valid.

Close to R10 billion was wiped off Telkom`s market capitalisation (the value from the total shares available to the market times the share price) since last Thursday, when the telecommunications group first announced its R30 billion strategy.

This strategy will include building a new-generation network to cater for Internet Protocol convergence, a customer-centric operational plan and other initiatives.

The share price was last trading at R144.50 this morning, a gain of 50c. Its main investor competitor, cellular operator MTN, dropped 28c to R59.99.

Financial implications

Old Mutual Asset Managers fund manager Steve Minnaar questions why Telkom chose to hold this kind of presentation during the group`s closed period, as it means none of the financial implications of the strategy could be discussed.

"The bottom line is that this sort of presentation is for those who have a material interest in the share. So what is the point of doing it the day after having issued a material guidance saying that margins would be lower and then not discuss them?"

Minnaar says Telkom indicated the capital expenditure programme would increase from 12% to 15% of cost of sales to 18% to 22%, "and yet they would not discuss the implications," he says.

Nothing new

Piet Viljoen, analyst at Regarding: Capital Management, says the presentation gave investors no real new insight into the company, but was the kind of strategy that should be expected from a large telco.

"The fundamentals of Telkom remain as they are and the share price seems to be at levels that are right. If investors base their strategy on momentum plays, such as short-term news affecting the company, that is one thing. However, Telkom will continue to be a long-term play," he says.

An analyst at a large commercial bank believes Telkom`s strategy offered nothing new since its last such presentation in November on its interim results.

"Why hold such a presentation without coming up with something really new? I would have expected such a strategy from their normal course of business. For instance, many of the things they are talking about now are already in place, and yet they are not detailing how much they will cost," he says.