South Africa's Telkom SA jumps on news of higher H1 earnings
JOHANNESBURG (Reuters) - Shares in South African fixed-line operator Telkom SA (TKGJ.J) hit their highest level in 20 months on Tuesday, after it said it was likely to report a 20 percent increase in first-half earnings, the latest sign that a turnaround is gaining momentum.
Telkom, in which the government and the state pension fund hold a combined stake of just over 51 percent, said headline earnings for the six months to end-September were set to rise more than 20 percent. The increase was partly due to lower finance charges and the fact that the previous year's results were hit by a regulatory fine.
Telkom's profits have been falling for years owing to stiff competition from mobile operators MTN Group (MTNJ.J) and Vodacom (VODJ.J), which it previously owned.
It has also been hurt by the failure of an expensive attempt to expand into Nigeria, and by a rapid turnover of chief executives.
However, Sipho Maseko, the sixth CEO since 2005, appears to be convincing investors he is getting the company back on track.
"You can't ignore what the share price is telling you. Obviously there are investors out there who believe that management is going to turn the business around," said Reuben Bleeders, a portfolio manager at Gryphon Asset Management.
"And there have also been a few things that have gone the company's way over the past couple of months."
Under Maseko, Telkom has written down the value of its network by 12 billion rand ($1.2 billion), and settled a number of long-standing regulatory disputes.
It also looks likely to benefit from regulatory changes proposed last week. Telkom's stock surged more than 5 percent on Monday after South Africa's telecoms regulator said it planned to cut by 75 percent the fees mobile operators can charge rivals to use their networks.
The changes are as seen helping Telkom and the smaller unlisted mobile operator Cell C at the expense of the industry leaders, Vodacom and MTN.
Telkom's stock has risen around 82 percent since Maseko's appointment in April, and is the best performer on the Johannesburg bourse over the last six months.
On Tuesday, the share finished up 4.2 percent at 27.62 rand after peaking at 27.99, its highest level since February 2012.
Thomson Reuters StarMine suggests its intrinsic value is 37.08 rand.
Telkom is due to release its interim results on or around November 18. Headline earnings are the main measure of profit in South Africa, and exclude certain one-off items.
(Editing by Kevin Liffey)
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