Merrill Lynch predicts R6bn cash payout
Windfall for Telkom investors
May 27, 2005
By Gugulakhe Masango
Johannesburg - The shareholders of Telkom, Africa`s largest telephone group, were likely to be rewarded with a R6 billion cash windfall as part of a new aggressive dividend policy, investment house Merrill Lynch has predicted in a research report.
The possible dividend follows Telkom`s buy-back of 10 million shares for R1.5 billion.
The group had warehoused a portion of the shares in investment company Rossal 65 to be used for Telkom`s conditional share plan. The remainder are treasury shares housed in a subsidiary known as Acajou Investments.
Telkom shareholders were likely to get an annual dividend of R10 a share, Merrill Lynch said.
The shareholders include the Public Investment Corporation, Elephant Consortium, Khulisa investors, Bernstein Emerging Markets Fund, ABN Amro Global and Investec Equity Fund.
This dividend will be good news for more than 52 000 black Khulisa shareholders, who received a loyalty bonus of R98 million from Telkom in March.
Telkom is 38.3 percent owned by the government and 10.1 percent by the Elephant Consortium, which is led by Andile Ngcaba and Gloria Serobe. The rest of the shares are held by institutional investors.
Merrill Lynch said that Telkom could consider other investment opportunities but that `an aggressive payout ratio will enable Telkom`s new empowerment shareholders [Elephant Consortium] to service some of their debt`. The investment firm said this would be in the interest of supporting black economic empowerment by Telkom.
The group`s shares have climbed 11.6 percent since January and soared 57.5 percent in the past year, pushing up its market capitalisation to R61.8 billion.
The stock rose 1.79 percent to close at R112.99 yesterday on the JSE Securities Exchange. The telecommunications services sector gained 0.92 percent.
Meloy Horn, a telecoms analyst at Merrill Lynch, expected Telkom`s headline earnings a share to increase 45 percent to R12.55.
Merrill Lynch was optimistic about Telkom`s growth. Horn said: `We expect Vodacom [Telkom`s cellular subsidiary] to report a 35 percent increase in its active subscriber base to 12.8 million.`
It estimated that Vodacom`s capital expenditure would rise 9 percent to R3.15 billion as a result of R400 million already spent on rolling out third-generation services in South Africa and consolidating 100 percent of the capex of Vodacom Democratic Republic of Congo.
Horn said Telkom could consider further share buy-backs, although `excess cash could be also be utilised for further investment opportunities such as into Nigeria`s fixed-line telephone group, Nitel`.
Telkom`s results will be the last for chief executive Sizwe Nxasana, who is leaving the group in December.
Horn warned that given this upcoming management reshuffle and the acceleration of competition, `we will be concerned about a too aggressive expansion strategy`.
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