The much-anticipated unbundling of Telkom is imminent, with CEO Sipho Maseko saying this week that the group's first step in the process - the introduction of a third party investor for its mast and towers division - would be completed by the end of March next year.
Speaking after the release of results for the six months ended September 30, Maseko said the mast and towers division "value unlock" was the starting block for a process that will see the JSE-listed company, which is partly state-owned, bring in either third parties in partnerships, or other long-term investors such as pension funds.
Telkom, which reported that group headline earnings per share and basic earnings per share were up 25.4% and 29.5% to 219c and 217c respectively, may also consider separate listings for some of the divisions.
Maseko, who has been Telkom CEO for more than seven years, said "without a doubt" Telkom is undervalued with everything under one umbrella.
This is reflected in the share price, which is trading at about R34, whereas it should be trading at between R65 and R75, he said.
Telkom's divisions that operate as separate businesses and brands include mobile & fixed line, fibre connectivity division Openserve, data centre business BCX, and the mast, tower and property division, Gyro.
"We take our data centre business, for instance, and benchmark it against other data centre businesses and we can then see what is the valuation gap," said Maseko. "We can say there is a lot of intrinsic value not reflected in the overall Telkom enterprise value [ev] to ebitda [earnings before interest, tax, depreciation and amortisation].
"Maybe we are better off taking out this business and maybe listing it on its own, or combining it with an existing data centre business, as an example, so that we can access that much higher ev/ebitda multiple that the other entity will be trading at."
Anchor Group analyst Mike Gresty said Maseko is "clearly signalling" that "this conglomerate of what are now different brands and what he calls self-sustaining businesses are not being valued fairly".
Gresty agreed with Maseko, saying that although Telkom is trading at an enterprise value of 2.5 times its ebitda, the listed peers of its separate divisions are, in some cases, trading at multiples of 10 times and more.
"What he is correctly highlighting is that these sorts of businesses, when they are split out, trade at much higher ratings than what the market is prepared to rate them within Telkom."
Gresty said he expects Telkom to "pull the trigger" on some form of unbundling in the next 12 to 18 months.
Peter Takaendesa, head of equities at Mergence Investment Managers, said for an investor "the big story" is splitting the group and listing some divisions separately.
Maseko said that over the long term the group may end up evolving into an "investment holding company" with interests in a number of separate businesses. However, the group will be "very thoughtful" about how the process unfolds.
Maseko said Telkom will be applying "precision marksmanship" to each decision about the various business divisions so that the desired "value uptick" can be achieved.
