Telkom shares overcome jitters

By Paul Vecchiatto for Telkom

Cape Town, 11 Apr 2006

Telkom`s share price recovered today after last week`s R30 billion capital expenditure announcement shed R7 billion from the telecommunications group`s market capitalisation.

In mid-morning trade today, Telkom was up 25c at R146.75, after having initially gained 80c during the opening session. Cellular network operator, MTN, considered Telkom`s main JSE competition, had slipped 10c to R60.10. The JSE`s key Top 40 index had gained 147.63 points, or 0.79%, to R188.27.

"Telkom`s share price seems to be calming after last week`s jitters which were based upon the perception the group may use money, that could have been earmarked to pay a special dividend, for its capital expenditure programme," says Mark Kirk, a trader at stockbroker Sasfin.

Kirk says he would be surprised if the share price dropped any further as it looks set to consolidate around current levels.

He describes trading in the Telkom share price as "steady" with just more than R30 million worth of shares changing hands so far today.

Dividend hopes

Dealers say Telkom`s announcement to analysts that by 2010 it would spend up to R30 billion on infrastructure upgrades dampened hopes for large dividend payouts in the future.

Since Telkom listed in March 2003, it has twice paid a special dividend as part of its policy of paying excess cash to shareholders, says Ian Timmerman, Telkom`s acting group executive of investor relations.

"The first was really a 90c celebratory payment in November 2003, and the second one was declared in June last year and was 500c of a total dividend of 900c," he says.

Timmerman says the special dividend policy was helped by the reduction of Telkom`s debt to equity ratio to 44%, which is ahead of its original target of 50% to 70%. This was achieved because of the group`s increased cash flows.

Rumours had been circulating in the market that Telkom`s total dividend for the 2005/06 financial year could be as high as R28 per share. However, Timmerman discounted this, saying analyst consensus forecasts were between R10 and R12 per share.

"Even without the capital expenditure programme, we could never have paid out as much as R28 per share," he says.

Telkom`s next annual results are due to be released on 5 June.