Telkom to kick-start sale of Openserve stake

Telkom could start the sale of a minority stake in its core fibre business by March, it said on Tuesday, as part of a slew of measures it announced to unlock value and shore up profits.

Telkom, which owns a big chunk of the fast growing home and business fibre market, had been a potential acquisition target in the past for the continent’s biggest telecommunications player, MTN Group, with smaller rival Rain considering it for a merger.

While both did not pursue the plans, the country’s third biggest telecoms player has been looking at options to save costs to improve operating margins at a time when South Africa’s power crisis and inflationary pressures are hurting the company.

Its third quarter core profit declined by 13.5% as crippling power cuts inflated costs and impacted its service revenue, it reported earlier on Tuesday.

Telkom said it was in the market to gauge buyer interest and a formal process could be launched by the end of March, adding that the end goal for fibre business Openserve would be to sell a minority stake in it.

It is expecting offers for its tower and masts business also by March.

Telkom, which has spun off its towers and masts and fibre businesses into separate units, has been exploring options to unlock value in these businesses, as management believes that the market is undervaluing them.

Some analysts peg the discount its shares trade at to its actual value at around 40%.

Read: Telkom moves to stem cash drain

It also announced a cost-saving drive to increase profits which have been impacted by rolling power cuts and high working capital requirements. It said it aims to cut costs “over the next six to 18 months and return to a blended group Ebitda margin of more than 25%”. (Ebitda, a measure of operating profit, is an acronym for earnings before interest, tax, depreciation and amortisation.) Telkom announced on Tuesday that it is planning to cut up to 15% of its workforce through a retrenchments programme.

Read: Telkom to cut up to 15% of its workforce

It is also looking to raise R1-billion through another sales process but said despite the measures, the profitability and free cash flows for the fourth quarter would be under pressure.  — (c) 2023 Reuters

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