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More Americans love Telkom

Telkom is attracting more American institutional investors in the equity markets as some South Africans ditch the shares of the country’s largest fixed-line operator.

Telkom’s turnaround strategy especially its initiative to cut fat in the business via retrenchments is facing opposition from its unions and ‘making some local investors uneasy’.

But United States of America’s institutional investors are picking up majority of the shares being dumped by locals in the equity market, followed by the UK and Germany.

Clearly Americans are seeing value in the business, when some South Africans are slowly losing faith.

In the year to end- March 2015, Telkom institutional shareholders by geographic showed South Africans institutions in a lead, followed by US shareholders.  But the number of South African shareholders in Telkom have reduced to 44% in 2015 compared to 77% in 2014, reflecting a 33% of vote of no confidence.

According to Telkom’s 2015 annual report, the US institutional investors rose to 35% in 2015 versus 15.3% in 2014, gaining 19.3% as it snapped up some of those shares sold by South African institutional holders.

While UK institutional investors increase their shareholding in Telkom rose by 1% to 5% in 2015 versus 4% in 2014.

Image source: Fin24
Image source: Fin24

Netherlands and Germany are sitting at 4% versus 2% that was occupied by the rest of Europe in 2014.

If Telkom’s turnaround delivers return to shareholders, clearly those South Africans who have sold their equity shares stand to lose on dividends that may be paid by the operator.

Last month, Telkom declared its first dividend in more than 3 years, announcing it will pay a dividend and a special divided totaling 245 cents per share.

During the year to March, Telkom reduced its net debt by 92.8% to R151 million and free cash flow increased to R3.9 billion.

It seems foreign institutional investors are positioning themselves for more return on investment at Telkom.

US-based SBC Communications, which bought AT&T in 2005, creating the new AT&T, used to own jointly with Telkom Malaysia a 30 percent stake in Telkom.

Telkom shares closed at R79.20 by the end of March 31 2015 versus R33.65 in the same period in 2014. The stock, which is valued at more than R29 billion, has increased 225% in the past 3 years.

 

 

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