Has Telkom’s silver lining been found?

*This content is brought to you by Sharenet

By Dylan Bradfield*

The drama never seems to cease in South Africa and none more so for a beleaguered Telco company Telkom, South Africa’s 3rd largest mobile phone operator. 

This past weekend, Bloomberg broke the story that the Public Investment Corporation (wholly owned by the South African government), former Telkom CEO, Sipho Maseko’s investment company, Afrifund and Axian were looking to make an offer for government’s stake in Telkom

The news itself met me with mixed emotions. As mentioned in my first Biznews Telkom podcast and article, the thesis was to see Telkom unlock value through corporate action around its assets. Without sounding too sceptical, this deal seems very coincidental. 

Read also: FFM insight: Sharenet’s Dylan Bradfield – why TKG, BLU better bets than VOD, MTN

Just over two weeks ago, the Telkom board scared the living daylights out of shareholders by mentioning a potential impairment as large as R13bn. Now there’s a “insider lead “consortium looking to scoop up a 35% stake at rock bottom prices. It almost reminds me of when Government sold R5bn of our strategic oil reserves at the bottom of the oil market back in 2015, and the oil was sold below market value.  

So where does this lead to for all the frustrated shareholders who have seen 44% of Telkom share price destruction this year alone?

Firstly, I mentioned in my last article that government wants to push forward funding of their National Health Insurance (NHI) program and that their Telkom stake had been earmarked as an initial funder for NHI. But we must ask why now? Why doesn’t government hold out for the sale of the assets and realize better value?  

My intuition tells me that there is more happening behind the scenes and most likely, some government officials will be making some hefty commissions on some shady handshakes. The flipside is that this could be a strong catalyst for a re-rating of Telkom’s share price. With government out the way, the new “consortium” will be more proactive in realizing value for all shareholders, and likely help re-establish the discussions with MTN for an outright sale. 

Read also: Every dark cloud has a silver lining; will Telkom shareholders find theirs?

If we reflect back to 2020, it was Sipho Maseko who showed a slide saying Telkom was worth R100 a share. I’m not saying it’s worth that, but it’s worth noting that someone who was once that close to the business still sees the opportunity to profit from a potential value unlock scenario in Telkom

I had my reservations as to why the Board was so keen to impair the assets so significantly. But now, we see why. As the latest story does the rounds, it’s likely that speculators will push the share back up to the R30 mark. 

We’ll have to sit tight to see if this story comes to fruition. For those Fantasy Fund Managers who listened to my podcast with Alec Hogg, and bought Telkom on that week, you will likely see some great outperformance, especially versus MTN and VODACOM as per our original thesis. Happy investing!