JSE-listed telecommunications businesses are regaining shareholder favour after last month's devastating global economic downturn. However, analysts say the recovery may well be short-lived.
Last month's fears of a possible global recession and a dramatic drop in the value of the rand forced investors to act with more caution. According to Irnest Kaplan, MD of Kaplan Equity Analysts, the markets remain turbulent and, along with most other industries, telcos will experience spikes and dips over the next few months.
“It would be dangerous to say this is the beginning of a major turnaround. It will take a while before markets really start to stabilise,” he notes.
MTN gained almost 45% in its share price over the last two weeks, following a dramatic drop in the company's share value in October. By market close on 24 October, MTN's shares had fallen to R74; a far cry from its peak in May this year, when investors were paying R160 for a share in the telecoms giant.
Last month represented the first time the company's share value had fallen below the R100 mark in years. MTN has recovered no less than 7% per day on what appears to be a firmer market, over the last two weeks. It closed up yesterday at R116.72.
MTN has also boosted its subscriber growth since it published its results in June. The group announced a 9% increase in its subscriber base, up to 80 736 000 as of 30 September.
Telkom's woes
Telkom ran almost parallel to MTN last month. However, its value did not plummet to the unprecedented low that its mobile counterpart faced. By 27 October, Telkom's share value was R89.50, its low for the year and also the first time in years that the company had dropped under the R100 mark.
Telkom was showing good value for new investors, especially since the sale of Vodacom is expected to provide a comfortable dividend to Telkom shareholders. However, the company has regained in a similar pattern to MTN and closed yesterday up 11% from the previous day's trade, at R116.46.
Kaplan says it is difficult to predict how the markets will react over the next few months. “There is really no way to explain what will happen in the short-term. What seems like a recovery may only be a spike in an already turbulent market.”
The oops effect
Kaplan says October's downturn and this month's increase can both be attributed to general market sentiment. “The spike in the telcos' share prices is not because of the telcos. Shareholders are responding the same way to most industries.”
He says many of the telcos have foreign investors, which had a large impact on the fall last month. “Foreign investors sold out of emerging markets across industries and the telcos were no different.”
Investors may well have oversold shares in the hopes of getting out of emerging markets; however, Kaplan explains that when share values, like MTN's or Telkom's, had hit lows, other investors saw the opportunity to buy. He says many of the initial shareholders would have realised a selling frenzy was unnecessary and would have begun to buy up again.
According to Kaplan, the telecoms providers are in a good position to keep head above water in any global downturn. “Companies that are annuity-based with consistent monthly incomes are a better investment in times of trouble. People may not go out for dinner when they feel the pinch, but it is unlikely they will get rid of their cellphones.”
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