Telkom reaches an inflection point


Telkom reaches an inflection point


Published Date: 2021-08-05 | Source: INCE|Community | Author: The Finance Ghost

Telkom reaches an inflection point

More and more companies are releasing quarterly earnings updates on the JSE. These are voluntary updates and so companies can technically release them in whatever format they want. Personally, I'm a huge fan of quarterly updates and I applaud the companies that are going this route.

Telkom has given an update for the quarter ended June 2021. This is the first three months of the financial year for the company.

Although the base includes the lockdown craziness, this has a different impact for a telecoms company. While many companies are posting massive earnings recoveries vs. the comparable period in 2020, the telecoms businesses have a tougher time of things because the lockdown period was marked by people working from home and consuming data.

Telkom's revenue is only 3.5% higher year-on-year, driven by the mobile business. The fixed line business is essentially in terminal decline (down 5.6% this quarter), which is masking the impressive things that Telkom is doing in the mobile space.

For example, mobile data revenue is up 11.1% and the number of mobile broadband customers is up by 30.9%. There are now 16.1 million active mobile customers. Overall, mobile revenue grew 13%.

The remote working trend is clearly visible in fibre to the home customer numbers, which grew by 32%. There are now more homes connected by fibre than by copper, a key inflection point for Telkom.

The revenue mix and strong cost controls are having a positive impact on EBITDA margin, which expanded from 25% to 25.9%. This helped drive group EBITDA higher by 7.3%.

To give context to the overall margin, the EBITDA margin in the mobile business is 28.4%. As mobile grows faster than the rest of the business, the EBITDA margin should increase further.

Interestingly, the second half of the year will see Telkom introduce a suite of investment products with Easy Equities. This will use Telkom's digital wallet technology. Telkom has a substantial user base and one shouldn't be too quick to dismiss the opportunities to increase share of wallet in this market.

BCX is not doing so well, unfortunately. The business has seen revenue drop by 4.9%, as IT investments have been sluggish by corporates. BCX has an annuity revenue mix of between 70% and 75% which helps cushion this impact. Another struggling business is Openserve, with revenue 1.4% down on the comparable period.

Telkom's share price is up 37% year-to-date but is down nearly 60% from the peak in mid-2019. Still, every dog has its day and this dog's tail is wagging at the moment.


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