Telkom CEO Delivers on Turnaround Plan as Shares Soar Fourfold

  • Stock gains 347% since Sipho Maseko started on April 1, 2013
  • Telkom is best performer of 68 large South African stocks

When Telkom SA SOC Ltd. Chief Executive Officer Sipho Maseko took the helm three years ago, the South African company was struggling with record losses and a share price close to all-time lows. Now, the phone operator is back in profit and the stock is booming.

Telkom’s shares have soared 347 percent since Maseko joined the former state-owned landline monopoly on April 1, 2013. That’s the best performance of 68 South African companies with a market capitalization above $1 billion, including Africa’s biggest company, Naspers Ltd., no. 2 on the list.

“Telkom as a company is in a very different position than it was three years ago,” Peter Takaendesa, a money manager at Mergence Investment Managers, which owns Telkom stock, said by phone from Cape Town on Thursday. “The new management has proven that they are able to deliver.”

Following his arrival from Vodafone Group Plc’s South African unit, Maseko and his team introduced a three-year turnaround plan that would determine the future of Telkom, still 39 percent owned by the government. The fruits of that recovery program were announced to investors on Monday, including a 32 percent rise in full-year earnings per share and a 10 percent increase in dividend payments. That’s enabled the Pretoria-based company to bring down the curtain on its turnaround phase and declare itself “ready for growth.”

In 2013, Telkom was struggling to cope with the decline in landline use and rise in smartphones, and had an unprofitable wireless unit. That division’s losses before interest, taxes, depreciation and amortization narrowed to 43 million rand ($2.9 million) in the year through March from 2.2 billion rand in 2013, Maseko said this week.

The CEO has also been reducing the financial burden from the company’s older, well-paid workforce. While negotiating with labor unions, Telkom offered voluntary severance packages and signed outsourcing contracts that have led to a drop in the number of employees to 12,500 from 21,000, Maseko said at the company’s full-year earnings presentation on Monday.

To read more about Telkom’s full-year earnings this week, click here.

Telkom’s rising earnings, diminishing workforce and a deal with unions to introduce performance-based pay led to record share-price gains this week. The stock rose more than 16 percent over Monday and Tuesday, the company’s biggest two-day advance on record.

“We believe our shareholders recognized the need for the turnaround strategy,” Telkom spokeswoman Jacqui O’Sullivan said in e-mailed comments on Friday. “We have laid a solid foundation for growth and we believe this is evidenced by the market’s ongoing support.”

A note of caution is that the share price of 67.63 rand as of 11:10 a.m. in Johannesburg on Friday is above the 65.23 rand average target of 11 analysts to have changed their forecast within the past three months.

Telkom resumed dividends in 2015 after a four-year break and Chief Financial Officer Deon Fredericks said the company wanted to grow the payment in line or above inflation targets.

“The market did not expect that Telkom’s management would actually be able to reduce its cost base and headcount as much as it did, mostly because of the government and union element in the company,” Takaendesa said. “On top of that, the company also resumed paying out dividends.”