Our opinion on the current state of TKG

Telkom, historically the government-controlled provider of fixed-line telephone services in South Africa, has undergone significant transformations in response to the telecommunications industry's evolution. The advent of cell phones prompted Telkom to subsidize the development of competitors such as Vodacom, MTN, and Cell-C through termination rates for calls, a practice now being phased out. According to CEO Sipho Maseko, Telkom has effectively subsidized other networks by approximately R70 billion over two decades.

Currently, Telkom is listed on the stock exchange, with the government owning a 41% stake and the Government Employees Pension Fund (GEPF) holding 11.9%. Despite its government ownership, Telkom operates independently, structured into five divisions: Open Serve, Telkom Consumer, Yellow Pages, BCX, and Swiftnet, which manages the company's masts, towers, and property interests.

Telkom's strategic management has been geared towards downsizing for profitability and a shift from fixed-line to mobile telecommunications. The announcement of CEO Sipho Maseko's resignation effective 30th June 2022 marked a significant leadership transition. Furthermore, plans to list its property and towers division, Swiftnet, were expected to unlock shareholder value and provide capital for Telkom's transition to cellular telephony, although this has been postponed due to global and market developments.

Recent years have seen Telkom focused on reducing its workforce and selling assets to streamline operations. The Special Investigating Unit's (SIU) investigation into sales of Iway Africa and Africa Online adds a layer of scrutiny to the company's dealings. Moreover, government's consideration of a R7 billion offer for its stake in Telkom from a consortium called Toto and CEO Maseko's involvement in a consortium aiming to acquire a significant portion of Telkom underscores the ongoing strategic shifts within the company.

For the six months ending on 30th September 2023, Telkom reported a 2.5% increase in revenue and a 46.7% rise in headline earnings per share (HEPS), highlighting improved operational efficiency despite challenges such as higher interest rates and loadshedding. However, the company's high debt levels relative to its market capitalization and the competitive landscape pose risks to investors.

Telkom's share price has experienced significant fluctuations, with a notable decline from highs around R98 in June 2019 to R15.00 in March 2020, followed by a period of sideways and downward movement. The company's efforts to navigate a tough economic environment and stiff competition while seeking new strategic directions highlight the complexities and challenges it faces in the rapidly evolving telecommunications sector.