Saturday, August 21, 2010

Why It's Time to Buy Telkom (TKG)

A recent cover story in the Financial Mail (19 August 2010 edition) has cemented my thoughts on why Telkom is a buy.

The story:
  • Is there any future for Telkom? I must say I had a chuckle with the copy of this piece: "Is there any future in Telkom’s business? Analysts and the new acting CEO suggest some ways the company can compete despite political pressure." Be warned: Analysts put forward some ideas on how to run the company.
  • Finally the cover concludes with the "Investment Case" for Telkom. The lead of this article, Khulekani Dlamini of Afena Capital, says: “If you remove the social imperative, it would do well in the hands of a private operator. They could buy it for what it’s worth and sell or shut down the non performing assets.” The social imperative? Buy it for what it's worth? Shut down non-performing assets after taking a R5 billion bath?
Telkom remains a firm buy in my mind, particularly given the fact that negative sentiment remains at a high, problems in Nigeria and probably reaching a peak, and the company trades for half of NAV. There's a mobile division coming, new ideas in bundled packages and data, and the scope and scale that nobody can match, including MTN and Vodacom. The dividend from these levels provides such a great margin of safety that little to no growth in the share price has little or no relevance to investment returns. Piet Viljoen (RE:CM) agrees.

Disclosure: I hold Telkom shares indirectly. I do not agree with Viljoen on Harmony Gold. I much prefer the Financial Mail to FinWeek.