Telkom under pressure as share prices falls by 3%

Telkom is facing pressure on its profit margins as share price falls by more than 3% on Tuesday morning after the company reported a revenue decline. In a trading statement, the company said discussions about a possible takeover by MTN “are at an early stage and still in progress”. MTN wants to buy Telkom in return for shares or a combination of cash and shares.

Telkom is facing pressure on its profit margins as share price falls by more than 3% on Tuesday morning after the company reported a revenue decline.

In a trading statement, the company said discussions about a possible takeover by MTN “are at an early stage and still in progress”.

MTN wants to buy Telkom in return for shares or a combination of cash and shares. The announcement last month triggered a sharp rally in Telkom’s share price – from around R33 to R45.50 by the end of July. On Tuesday morning, Its share price declined by more than 3% to R42.65 – from around R54 at the start of the year.

For the three months to end-June, Telkom’s revenue declined by 3% to R10.3 billion compared to the previous year.

Revenue from its fixed line business continued to decline by almost 20% from the previous year. This was partially offset by an increase in revenue of its BCX IT business (+5%) and its fibre internet business Openserve (+8%).

Telkom’s earnings before interest, taxes, depreciation, and amortisation (Ebitda) declined by 15%, with its profit margin shrinking by 3.2 percentage points to 22.7% due in part to an annual salary increase of 6%, as well as lower data prices for its mobile customers. Its effective price per megabyte reduced by almost 15% year on year. “The increase in the traffic growth, however, was not sufficient to offset the decline in effective pricing,” Telkom said.

Its mobile revenue declined by 2% to R5.2 billion, despite 8% growth in total mobile subscribers.

Openserve increased the number of homes connected with fibre by 35%, and saw a 19% increase in fixed data traffic. However, its profit margins came under pressure due in part to R44 million spent on diesel for generators during load shedding.

Telkom said its Openserve business will be legally separated as a standalone subsidiary from 1 September.

While Telkom planned a listing of its masts and towers business, Swiftnet, on the JSE, this has been delayed – and on Tuesday the company indicated that it may pursue a different avenue.

The company said that markets “remain volatile and unattractive for a new listing”, and that it has made substantial progress in considering “other strategic options”.

Source: News 24