Market awaits Telkom, Vodacom action

Johannesburg, 04 Jun 2009

Now that the listing hype is over, Telkom and Vodacom are going to have to start implementing their promised growth strategies in order for their share prices to move up, say analysts.

Frost & Sullivan senior ICT industry analyst Lindsey Mc Donald says Telkom could potentially go through a stage during which its shares decline before improving. Telkom shares were last seen trading at R36.60, down from having traded at over R60 before Vodacom was unbundled.

Mc Donald says the market now needs to "see a demonstration of Telkom`s strategy". Growth plans, such as a move into Africa, need to be implemented.

The share was discounted after Vodacom was unbundled and Telkom paid out a R19 dividend. Mc Donald says the market is now viewing Telkom only as a fixed-line operator, which is weighing on its shares. "That perception is likely to be around for a bit, until Telkom proves the viability of the brand on its own."

Vodacom is in a similar situation to Telkom; its share having settled since the listing to trade at around R54 a share after its listing peak of R63. Mc Donald says the market also needs to see Vodacom putting its growth strategy into action. "The hype is over."

Chris Gilmour, analyst at Absa Investments, says Telkom must now stand on its "own two feet". The company is facing competition from Neotel and other entrants into the broadband market, he adds.

Despite having outlined a plan to expand on the continent, Gilmour says Telkom has a lack of experience in that area and is likely to battle to grow in Africa.

The company will have to play a catch up role in many of its outlined growth areas. Telkom`s next-generation network, which is at an advanced stage after being fast-tracked for 2010, will have to prove its worth in terms of the converged offerings Telkom expects it to be able to deliver.

In addition, any plans for technological innovation such as IPTV will come up against the incumbent, DSTV, which has that market sewn up, he notes.