The Telkom (TKG) share price saw a significant increase of over 7% following reports that the Public Investment Corporation (PIC) was backing abid for it. As of 2022, TKG is 40.5% government-owned and the PIC holds a 15.13% stake. These recent developments are certainly worth keeping an eye on.
As a result of news that the Public Investment Corporation (PIC) supports the investment vehicle that the company’s former chief executive officer, Sipho Maseko, founded, Telkom’s shares, the third-largest mobile operator in South Africa, rose by 7% on Monday. According to reports, the PIC is making a bid for a sizeable stake in TKG or its assets.
The PIC, Maseko’s investment firm Afrifund, and the Mauritius-based Axian Telecom company were all reportedly involved in discussions that could give the group a roughly 50% stake in the mobile operator, according to Bloomberg on Saturday. The discussions were ongoing, according to the report.
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In 2022, the PIC, which was in charge of managing assets worth more than R2.5 trillion, owned 15.13% of TKG, and the government-owned 40.5% of TKG. These two organisations jointly held 65.5% of TKG.
There is also a chance, say sources who asked to remain anonymous, that the group will try to purchase Telkom’s fibre and tower units to combine them with Axian’s assets and create an infrastructure firm emphasising Africa. According to the sources, there is a chance that the group will try to purchase Telkom’s assets, which supports this possibility.
On Monday, the value of Telkom’s shares on the JSE increased by more than 7%; however, over the previous month and the previous year, their value decreased by about a fifth and more than 40%, respectively.
The group intends to release their findings on June 13th, and the recent drop in share price has fueled rumours that the business will soon undertake sizable corporate activity.
Telkom’s stock fell by double digits at the beginning of the month of May after the company informed investors that the switch to its new digital strategy and plans to slash up to 15% of its workforce would result in over R1 billion in retrenchment-related costs and R13 billion in writedowns of different divisions in its fiscal year that ended in March.
As of the end of September, TKG had a net debt balance of R16.3 billion, straining the company. In addition, MTN withdrew from the negotiations in October, citing a lack of exclusivity as the reason, and the talks with Rain, a data-only operator, were terminated in January as a result.
Despite the possibility that speculation is driving the stock price, Makwe Masilela, the CEO of Makwe Fund Managers, noted on Monday that TKG is incredibly undervalued at this point. In response to a query about whether or not speculative activity is driving the stock price, he said this. In response to a question about whether or not the rumours might be pushing the stock, Makwe Masilela stated the following.
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Masilela continued by stating that MTN still needed to connect to TKG’s 160 000 km long fibre network and that TKG needed working capital. Masilela added that MTN still needed to connect to Telkom’s fibre network to complete his statement. He claimed that MTN had to return and restart the talks because it was inevitable.
The depressed share levels of the group, according to Peter Takaendesa, head of equities at Mergence Investment Managers, showed that it was not effectively using valuable infrastructure assets to generate operational cash returns for shareholders. Based on the fact that the group’s share levels were low, he came to this conclusion.
According to him, the value of Telkom’s infrastructure assets is significantly greater than TKG’s market value “based on recent market transactions on other related fibre and tower assets.” This assertion is based on recent market transactions involving other comparable tower and fibre assets. This assertion is based on the finding that Telkom’s infrastructure assets have a value that is significantly greater than its market value.
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“There is significant value on the table for investors who are able to handle difficult stakeholder problems at TKG and prioritise the unlocking of value from its assets,” claims Takaendesa. In other words, “investors are leaving money on the table in significant amounts.”
