Our opinion on the current state of TKG

Telkom (TKG) has undergone significant transformations since its days as the government-controlled provider of fixed-line telephone connectivity in South Africa. The advent of cell phones forced Telkom to subsidize the development of its competitors, resulting in substantial financial burdens. CEO Sipho Maseko noted that Telkom has effectively subsidized other networks to the tune of R70 billion over the past two decades.

Currently listed, Telkom operates independently, divided into five divisions:

1. Open Serve: South Africa's primary supplier of wholesale connectivity.
2. Telkom Consumer: A leading supplier of broadband internet connectivity with a growing mobile phone network.
3. Yellow Pages: Provides advertising and marketing services to local businesses.
4. BCX: An ICT solutions company operating in Southern Africa.
5. Swiftnet: Formed to manage Telkom's masts, towers, and property interests.

While Telkom faces challenges related to regulatory decisions on interconnect fees by ICASA, it has been well-managed, with downsizing expected to lead to improved profitability. The company is transitioning from fixed-line to mobile services.

The resignation of CEO Sipho Maseko and plans to list its property and towers division separately as Swiftnet were significant developments. However, the listing was postponed due to market conditions, including the war in Ukraine. The company also faced investigations into the sales of Iway Africa and Africa Online.

Various acquisition offers, including a R7 billion bid for the government's stake and CEO Sipho Maseko's consortium's proposal to acquire 35% of Telkom for R12 billion, demonstrated interest in the company.

In its financial results, Telkom reported revenue and headline earnings per share (HEPS) growth for the six months ending September 30, 2023. Lower depreciation charges and growth in EBITDA contributed to profit, despite higher interest rates increasing net finance costs. The company's revenue and EBITDA remained stable in the following quarter.

The announcement of the sale of Swiftnet for R6.75 billion to reduce Telkom's debt was a significant development. However, Telkom's share price has experienced volatility, falling from highs in June 2019 to lower levels in March 2020. The company's high debt relative to its market capitalization poses risks for investors, indicating challenges in navigating the difficult economic landscape and stiff competition.