What to expect from Telkom full year results today

By Vivian Atud
South Africa’s leading integrated communications service provider Telkom SA SOC Ltd (JSE Code: TKG) is set to release full year results today June 8 2015. It currently has a market capitalization of over 34 billion rand. Looking at Telkom’s share price over the past 12 months the company still looks attractive haven gained 59.7 percent price increase in the past 12 months. But investors need to look beyond the share price to see what value is contained in Telkom. Let us look at the core business of the company in the past few years.
In the last few years the company’s core fixed line business has trended lower. This has been as a result of growth in infrastructure and in turn increased mobile penetration by competitors eroding fixed voice line usage in particular.
Telkom has guided that fixed line voice usage and lease line revenue for the full year will have been in line with trends evident in the interim results reported. In the interim period, fixed line subscription revenue did increase by 0.7% as a result of tariff increase, however fixed line usage revenue declined by around 12%.

Its mobile business seems to have extended a strong first half of the year, into the remainder of the year, as indicated by the company. Although a smaller contributor to group revenue, the mobile voice and subscription revenue has been increasing exponentially (+54.7% H12015) as the average revenue per user (ARPU) has been growing as has the subscriber database. Telkom’s mobile business has also benefitted from the forced cut in mobile termination rates imposed on the larger industry players MTN and Vodacom.
According to its interim results, decreased operating revenue from data subdued due to a migration of services and continued competition in the current market place. The full year earnings will see investors assessing whether this division, which is a major contributor to revenue, has improved in the second half of 2015 from a lackluster interim period.
According to forward guidance from Telkom, basic headline earnings per share will be between 10% and 30% lower for the reporting period (vs. FY2014). The decline in earnings against the prior year’s comparative is in part due to the inclusion of provisions for retrenchment, voluntary severance and retirement packages as well as a net curtailment gain reflective in the prior year’s earnings. Normalised basic headline earnings per share, which exclude one-off items, is expected to be 20% to 40% higher.

Telkom has had a conditional approval by the competition commission on its proposed acquisition of Business connection. The deal should accelerate the company’s expansion into the non-core ICT services space benefiting Telkom moving forward.
Telkom and MTN South Africa remain in discussions regarding the potential extension of their existing roaming agreement to include bilateral roaming and outsourcing of the operation of Telkom’s radio access network. Telkom currently have a PE of 15.81 and an earnings yield of 6.33. This is higher than most companies in the sector; however, Telkom paid no dividend yield in the past year. Investors who are looking for dividend will be looking out to see if any dividend yield or payout will be declared in the full year results today.

According to standard bank securities forecast, there are prospects for both earnings and dividend of Telkom to grow in the financial year and the coming years as illustrated below. However, investors will be watching closely to see if the data released today is in line with the current forecast.

For investment advice contact info@atudandassociates.co.za

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