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30 March 2012 23:12

Market watcher & company news: Wayne McCurrie - Momentum Asset Management

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Alec Hogg is a writer and broadcaster. He founded Moneyweb

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    Telkom’s basic business ‘is in terminal decline’.


    ALEC HOGG: Here is Wayne McCurrie to tell us all about Telkom.

    WAYNE McCURRIE: It came out with a trading update which is a profit warning, and there was a whole lot of information in there. But to try and summarise it, operating profits are down 25%. In other words, the business they are carrying on doing is down 15% compared to last year. But there were a whole lot – as we are getting used to with Telkom – of extra write-offs. They wrote off another R1bn on Multi-Links Nigeria.

    ALEC HOGG: Another billion? After how many billions?

    WAYNE McCURRIE: I don’t know. Five or six billion in Multi-Links. They wrote off R550m on a company that I've never heard of, and I follow Telkom. I've just never heard of this company.

    ALEC HOGG: So the deal kind of went below the radar screen.

    WAYNE McCURRIE: I don’t know what happened. Some business wrote off another R550m. Then they’ve spent another R2.2bn on 8ta.
        Then they wrote off another extraordinary amount of money on additional depreciation after reviewing the useful life of their stand-alone assets, or the existing assets, which basically means the equipment is running down quicker than they thought it would, and they are going to have to replace it – this is on their fixed-line business.

    ALEC HOGG: Well, the copper cables are getting stolen at a rate of knots.

    WAYNE McCURRIE: These are all the switchgears and stuff like that. I have the greatest sympathy for Telkom management. Their basic business is in terminal decline, fixed-line phone is in terminal decline.
        However, they haven't helped by pouring money into Multi-Links and into Telkom Media and into other ventures that have not paid off to try and diversity their business.

    ALEC HOGG: They know the core business is in trouble, and they’ve been making these bets all over the place.

    WAYNE McCURRIE: And they haven't worked so far. Quite frankly, eta – I don’t know how it can be successful. You are entering a market – ask Cell C if they’ve made money – that’s fully saturated. Everyone’s got two cellphones. It's gone ex-growth, and the only way you can compete is on price war and on price war you don’t make money. So I just don’t know. I think that money in 8ta is not going to be fruitfully expended.

    ALEC HOGG: The share price of Telkom is down 1.5%, and that takes its decline in the last year to one-third. So had you put R1 into Telkom a year ago, it's worth 66c today. Is there – what does Warren Buffett call it – a cigar-butt opportunity here? You take one last puff out of this one?

    WAYNE McCURRIE: It's quite possible. But we are probably not there yet. I think it's at an 8 price/earnings ratio. Now, of course with these results that P/E goes up because the “e” part of the P/E ratio…

    ALEC HOGG: The earnings part.

    WAYNE McCURRIE: The earnings part has fallen. If this was a 3 P/E or 4 P/E you could say OK, the bad news is in the price, it's going to generate cash. But the thing is, it's not generating cash because they are spending it on 8ta. Well, we just hope the Koreans come along and…

    ALEC HOGG: Do something. It's only worth R12.5bn today. Quite extraordinary, isn't it, if you consider all the assets that it has, to be worth that. They’ve blown almost as much of that on the Nigerian adventure.

    WAYNE McCURRIE: Ja. But we’ll see whether the Koreans, KT telcoms, are going to pay R36 for a share that’s trading at R24.

    ALEC HOGG: Well, they’ve already said they aren't going to. They’ve said not for us, thank you very much. Perhaps there was a price renegotiation.
        Anyway, there are better places to be working right now than in the Telkom top management – is that what you were telling us?

    WAYNE McCURRIE: They’ve got an extremely tough job.

    ALEC HOGG: Jacques Schindehütte is there. He actually came on the programme and, if you remember, said wow, what a difficult job he’s got in front of him.
        Outside of Telkom, the rest of the market today, Wayne?

    WAYNE McCURRIE: It wasn’t bad. A little bit of green on the diversified miners, even though platinum shares came under severe strain. The rest of the market – MTN down a little on the whole Turkcell/Iran story.

    ALEC HOGG: Nedbank down 3%.

    WAYNE McCURRIE: Ex-dividend. But ex-dividend wasn’t the reason for the whole fall, but the majority of the fall was they paid a dividend or, more correctly, it was the last day to register.

    ALEC HOGG: They seem to be doing good work, the Nedbank people. So when you see the share price down by 3%...

    WAYNE McCURRIE: That I suppose all investors must realise about shares. Not that many years ago Nedbank was such a terrible investment, no-one wanted to touch it, and Standard Bank was the king. Now Standard Bank is such a terrible bank no-one wants to touch it. And FirstRand also went through that, and Absa went through that. So shares go through cycles.

    ALEC HOGG: Tiger Brands had a good day. Naspers was the leader of the Top 40, that was up by 2…

    WAYNE McCURRIE: We know Naspers – essentially the share price hangs on what their Chinese operation, Tencent, does, and their last results were actually quite encouraging. They seem to be convincing people who would normally use their service for free to actually pay for things now. So that seems to be turning around quite nicely.
        Tigers was one of the big star performers last year. Tigers was up massively last year. But I'm not sure it looks cheap any more. This a wonderful company, it's stable, we all know Tiger foods, but I'm just not sure it's cheap any more.

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