Telkom, partially owned by the state, has the smallest market value among South African telecom giants but remains an integral part of the country’s economic and technological infrastructure.
Despite its market value of R11.6bn — compared to giants like Vodacom valued at R201bn and MTN at R142bn — Telkom remains a pivotal player in the telecom sector.
Its services enable essential transactions, such as the operating of fuel pumps and ATMs. However, this strategic significance is not mirrored in the performance of Telkom’s shares, which have plummeted 46.73% over the past three years and by 21% in the last year-to-date.
Despite this, Telkom maintains a solid base of loyal institutional shareholders. As of March 31, institutional investors held 44.6% of its shares, while the South African government owns 40.5%, and non-institutional investors 9.4%. The remaining 4.7% are treasury shares.
The breakdown of institutional ownership reveals that South African investors dominate with 82.9%, followed by US investors at 12.4%, European investors at 2.1%, and UK investors at 2.1%.
However, in the past five years, Telkom’s share price lost 72.56% of its value. This raises an intriguing question: what do these institutional shareholders see in the business?
The top 10 institutional shareholders include notable South African investors such as the Public Investment Corporation, PSG Asset Management, Ninety One SA, Mazi Asset Management, Laurium Capital, Camissa Asset Management, and Aluwani Capital Partners.
Significant US investors such as The Vanguard Group and Dimensional Fund Advisors also hold stakes, alongside European representation from M&G Investment Managers.
This week Telkom published its integrated annual report which sheds light on the investment styles of these institutional investors. Approximately 32% of shareholders are value investors, 16.1% are focused on growth at a reasonable price, 13.8% are hedge funds, and 12.8% are seeking growth opportunities.
Institutional investors’ faith in Telkom may soon be rewarded. Last month, it reported a full-year 2024 profit of R1.9bn and indicated a potential resumption of dividends from 2025. The board proposes a dividend payout range of 30%-40% of free cash flow, after accounting for capital expenditure investments. The prospect of dividend payments could attract more investors, particularly given that Telkom’s stock is currently undervalued.
Under CEO Serame Taukobong, the company is pursuing an infrastructure strategy, dubbed Infraco, to unlock value trapped in its assets. One of the significant steps in its value creation plan is the sale of its masts and towers business, Swiftnet, to a consortium led by Royal Bafokeng Holdings and Actis LLP, for R6.75bn.
Telkom could play a significant role in bridging the digital divide in South Africa. By investing in rural connectivity projects and affordable internet solutions, the company could contribute to social and economic development while expanding its customer base
This move is part of a broader effort to ensure the company’s market capitalisation reflects its true value.
Telkom is likely to get another boost when Taukobong and his team finalise the valuation of Openserve’s key assets and prepare for potential listing on the JSE. Additionally, there is untapped potential in its data centre portfolio owned by BCX.
Its consumer business, which includes Telkom Mobile, is performing robustly, boasting 20-million subscribers and an increase in external revenue by 2.2% to R26.1bn. Mobile operations revenue grew 4.5% to R22.6bn, driven by a 6.8% rise in mobile service revenue. Openserve’s revenue from next-generation, data-led products and services rose 7.4%, accounting for 76.4% of its total revenue.
These positive trends across Telkom’s operating businesses are expected to strengthen its financial position and support long-term growth, making it more attractive to investors.
To fully realise value, Taukobong and his team must continue to seek strategic partners for Openserve and BCX. These partnerships could further enhance the company’s competitive edge and market positioning.
While its share price has suffered in recent years, the business’s strategic initiatives and operational successes suggest a promising future. Institutional investors’ continued faith in Telkom indicates a recognition of its underlying value and potential for significant returns.
It holds several hidden values that can be leveraged for growth and competitiveness. Openserve’s extensive fibre network can be utilised for expanding broadband services and improving connectivity in underserved areas. There is potential for Telkom Mobile to capture a larger share of the mobile market, particularly by leveraging competitive pricing and innovative data plans.
Telkom could play a significant role in bridging the digital divide in South Africa. By investing in rural connectivity projects and affordable internet solutions, the company could contribute to social and economic development while expanding its customer base. By strategically leveraging these hidden values, Telkom could enhance its market position, drive growth, and create long-term value for shareholders and customers.
Taukobong and his team must move swiftly to deliver on their value unlock strategy, as the market has been anticipating this since the days of former CEO Sipho Maseko.
The public, investors and stakeholders remain keen to see a more agile and profitable Telkom that continues to be the backbone of South Africa’s digital future.
• Lourie is founder and editor of TechFinancials.
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