Telkom falls on potential write-off of almost the entire group value

By Loni Prinsloo and Khuleko Siwele

Telkom SA SOC, South Africa’s third-largest telecommunications company, plunged by as much as 30% after warning of a potential asset writedown of about 13 billion rand ($679 million) — the equivalent to almost its entire market value. 

The partly state-owned firm is facing significant challenges including low economic-growth rates and technological advances elsewhere, the Pretoria-based company said in a statement on Wednesday. Reported earnings-per-share is expected to drop as much as 485% for the fiscal year that ended in March. Headline EPS, which excludes one-time charges, is seen falling as much as 105%. 

While all South African mobile operators have been struggling with myriad challenges, including nationwide power cuts, vandalism of infrastructure and high unemployment, larger rivals Vodacom Group Ltd. and MTN Group Ltd. have been able to maintain growth and emerge as the country’s dominant providers. Telkom, a former state monopoly that controlled the legacy landline business, has spent years trying to reinvent itself as a mobile and internet provider but hasn’t been able to keep up.

The company has pivoted to trying to sell off assets such as fiber and telecom towers, Bloomberg News reported previously, and in February announced plans to cut as many as 15% of its workers. After consulting with unions, voluntary-severance packages have now been extended to all employees, Telkom said, and costs will come through in 2024. 

Telkom shares traded 12% lower at 12 p.m. in Johannesburg after earlier dropping as much as 30%, the biggest decline since 2009. That values the company, more than 50% owned by the government and state-owned money manager the Public Investment Corp., at 14 billion rand.

“The group remains in structural decline with weaker cash generation, so it makes sense to impair the stale book value further,” Mergence Investment Managers head of equities, Peter Takaendesa, said in an interview. “Telkom continues to have some great infrastructure assets that are worth more in the hands of those that can utilize them efficiently.”

MTN, Africa’s largest wireless carrier and the second-biggest by subscribers in South Africa, explored a takeover bid for Telkom last year before abandoning its pursuit.

“The announcement, and expected negative market reaction, may increase the takeover threat,” Avior analyst Michael Steere said.

Read More: MTN Walks Away From Talks to Buy South Africa’s Telkom 

Telkom’s writedown won’t impact earnings before interest, taxes, depreciation and amortization generated from operations, its cash position or compliance with debt covenants, the company said.

Telkom said it will release its full-year results on June 13. 

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