Telkom shares up on CEO resignation

By Paul Vecchiatto for Telkom
Cape Town, 10 Apr 2007

Telkom's share price was within easy reach of its all-time high in morning Johannesburg Stock Exchange trade today, as the market digested the news of the sudden resignation of the telecommunication group's CEO, Papi Molotsane.

In mid-morning trade, the share price bounced 1.23%, to R175.50, a touch below its all-time high of R176.02 that it hit on 23 February, according to financial news wire I-Net Bridge.

Telkom is in a closed period ahead of the release of its year-end results, expected in late May or early June.

The I-Net Bridge consensus forecast has Telkom's headline earnings per share at R17.29 and a total dividend of R10 per share, of which 600c is expected to be an ordinary dividend and the rest in the form of a special dividend.

One JSE analyst says it seems the market is reacting well to Molotsane's sudden departure, but the reality still has to settle in as to what it really means for the country's most powerful telecoms group.

"Molotsane was criticised for lack of vision and being an outsider to the telecoms industry. However, it seems government wants to have a tighter grip on Telkom, and if I was a shareholder, I would be worried," the analyst says.

Lack of leadership

He adds that Molotsane's resignation is symptomatic of a structural breakdown within the telecoms regulatory environment. This is due to a lack of leadership in the Department of Communications and the perceived ineffectiveness of the regulator - the Independent Communications Authority of SA, he notes.

Roger Walters, an analyst at asset management company Regarding: Capital Management, says: "Today's move in the Telkom share price is really a sign of 'business as usual' for the market. Telkom's share price at a price:earnings ratio of nine is considered relatively cheap by the overall market."

Richard Hurst, senior analyst with BMI-TechKnowledge, says Molotsane's departure signals a lack of confidence in Telkom, as it's one of a number of high-level resignations from the company in weeks.

"We've seen a slew of resignations at Telkom. Is there something awry in the castle?"

He says it would be discouraging if Molotsane's resignation were due to government's interference.

"We need a fine line where government plays the role of enabler, and lets the market develop from there. Government should watch out for monopolistic practices; government shouldn't be actively taking part in the business of the sector."