Telkom lost more than R2bn of its value on Tuesday after the telecoms group issued a profit warning flagging a drop in halfyear profit, weighed down by costs related to its investment in its fledgling mobile network.
Under CEO Sipho Maseko, Telkom, which runs SA’s biggest fixed-line telecom network, is in the middle of transforming itself into a modern telecommunications provider with heavy investments in its mobile phone unit and capitalising on its extensive fibre infrastructure to sell internet services.
Shares in the company, 40% owned by the government, slumped as much as 12% before paring losses to close 7.46% lower at R62.52, a level last seen in January.
The company, which is due to issue its half-year financial results on November 12, said headline earnings per share were expected to drop 30%-40% in the six months to endSeptember to a range of between 172.8c and 201.6c.
Telkom said the drop was due to a “significant increase” in finance charges related to its increasing borrowing to fund the rollout of its mobile and internet network. Its net debt was close to R9bn at the end of March.
The company said the results were also affected by changes in accounting standards.
Maseko, at the helm since 2013, has made internet data the cornerstone of Telkom’s strategy to take on bigger established rivals MTN Group, Vodacom and Cell C.
As part of a growing trend in the industry to diversify away from basic telecoms services, Maseko is expected to unveil a suite of financial services products including insurance in next week’s results.
Peter Takaendesa, a portfolio manager at Mergence Investment Managers, said: “I don’t think they have communicated very well,” adding that a 30%-40% drop in earnings requires more detail on the underlying revenue and profit performance of the business.
In May, Telkom’s shares rose to as much as R98 after the group reported better-thanexpected annual earnings thanks to strong growth from its mobile business.
At the time, the group reported a 5.3% rise in operating revenue in the year to end-March to R41.8bn.
Earnings and earnings before interest, tax, depreciation and amortisation, or core earnings, grew 8.5% to R11.3bn.
Telkom’s share price had also grown through the year on hopes that the network operator’s fledgling mobile business will continue to win market share, and also on expectations that the group will unlock value from its vast property portfolio.
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