Telkom (TKG)

Ask most South Africans under 40 what Telkom does, and the answer usually involves a landline nobody uses anymore. The numbers tell a different story. Telkom's mobile business now has 25.7 million subscribers, data accounts for roughly 60% of group revenue, and net debt sits at just 0.5x EBITDA. Yet the share trades at an enterprise value of roughly 2.5 times EBITDA, less than half of what the market pays for Vodacom. The gap is real. The question is whether it is a mispricing or a fair price for what Telkom still is.

What Telkom Actually Is in 2026

Group revenue for the year to 31 March 2026 came in at R44.48 billion, up just 1.4%. That headline growth rate hides three businesses moving in very different directions.

Telkom Consumer is the largest unit and the one doing the heavy lifting. Its mobile business generated about R17.7 billion in revenue in FY2026, mobile EBITDA increased 14%, and the mobile EBITDA margin expanded to 29%. Consumer EBITDA as a whole climbed 20.8% to R6.73 billion.

Openserve, the wholesale fibre and network business that Consumer, BCX and third-party ISPs all run on, delivered its first full year of revenue growth in nine years. Revenue rose 2.3%, EBITDA grew 5.6% to R4.23 billion, and the EBITDA margin reached 33.5%, the highest in the group. Its fibre footprint passes about 1.54 million premises, with 817,540 homes connected.

BCX, the enterprise IT and connectivity arm Telkom bought for R2.7 billion in 2015, is the problem child. Revenue fell 7.6% to R11.41 billion in FY2026, driven by the decline in its legacy converged communications business as clients migrate to fibre platforms. IT services revenue held flat, and cybersecurity grew 21.1%, but neither is large enough to offset the erosion.

Pure SA Exposure, With the State in the Room

Telkom needs no South African angle explained. It earns its revenue at home, has no rand hedge, and lists only on the JSE. That cuts both ways: no translation gains when the rand weakens, but no exposure to the currency shocks that periodically hit operators with large rest-of-Africa footprints either.

Ownership is the other structural feature. Government holds 40.51% directly, with the Department of Communications and Digital Technologies as shareholder representative. The Public Investment Corporation lifted its stake to 10.25% in July 2025, putting the state's combined position at about 51%, a majority again after the PIC briefly took it below 50% in 2024. Every major capital allocation decision at Telkom carries a political dimension that Vodacom and MTN shareholders never have to price.

Mobile Carries the Growth, But Check the Quality

Mobile is the engine. FY2026 mobile service revenue grew 6.8%, prepaid service revenue rose 10.3%, and mobile data subscribers jumped 31.1% to nearly 20 million. Telkom describes its service revenue growth as market-leading, and the contrast with the incumbent is stark: Vodacom's South African EBITDA fell 1.7% in its FY2026 year, partly on a one-off cost. In the first quarter of FY2027, Telkom's mobile service revenue grew a further 6.4% and mobile data revenue 11.4%.

The growth comes with an asterisk. Telkom has disclosed that 24.7% of prepaid recharges are funded by airtime advances, and that 54.6% of prepaid service revenue in the June 2026 quarter came through its Mo'Nice and Mo'Town customer value management platforms. Airtime lending is standard in prepaid markets, and Vodacom's share is reportedly closer to half. But it means part of Telkom's momentum depends on extending credit to price-sensitive customers in a stretched consumer economy, while MTN is moving the other way and cutting back on airtime credit. That ratio is worth watching every quarter.

The Disposal Story Has Already Played Out

The most popular bull case for Telkom has been value unlock through asset sales. Most of that has already happened. The Swiftnet towers sale, headline value R6.75 billion, closed in March 2025 with R6.575 billion received in cash, producing a R4.7 billion gain in discontinued operations in FY2025. Telkom used the proceeds to settle about R4.8 billion of interest-bearing debt.

Property is winding down too. Non-core property sales lifted EBITDA margins through FY2025 and into FY2026, but Telkom told investors in November 2025 that it does not expect future property sales to be significant.

And the Openserve stake sale, the catalyst most often cited for a re-rating, is off the table. Telkom tested the market for a minority stake in 2023, then shelved the process, with CEO Serame Taukobong calling Openserve a core and critical part of the group. Rather than sell it, Telkom is pushing Openserve further into the market: it launched its own ISP in July 2026 to monetise the existing network directly.

The disposal question that remains open is BCX. Long-serving CEO Jonas Bogoshi retired, and Telkom veteran Hasnain Motlekar became acting CEO on 1 March 2026, with the group describing the handover as the next phase of BCX's strategic review. Telkom has reportedly considered a partial or complete sell-off. Whatever it decides, that matters more for the valuation than anything left in the property book.

The Numbers

Figures are from Telkom's FY2026 results for the year to 31 March 2026 unless stated. Market data is as at early October 2026.

• Share price: about R50.60, against a 52-week range of R45.02 to R66.61
• Market capitalisation: about R25 billion
• Net debt: R6.37 billion, or 0.5x EBITDA
• EV/EBITDA: about 2.5x, against roughly 5.5x for Vodacom on FY2026 numbers and about 3.7x for MTN
• Group EBITDA: R12.48 billion at a 28.1% margin, above the 25% to 27% medium-term guidance range
• Headline earnings per share: 708.5 cents, a trailing P/E of about 7x, against roughly 14x for Vodacom
• Ordinary dividend: 270 cents, up 65.7%, a trailing yield of about 5.3%
• Free cash flow: R3.07 billion, up 10.4%

What the Market Is Actually Pricing

The familiar framing that the market prices Telkom like a dying fixed-line operator does not fit the share price history. The stock rose more than 60% in the first half of 2025 alone and traded as high as R66.61 within the past year, roughly two and a half times the R24 to R27 range the PIC was selling at in August 2024. The turnaround has been noticed.

What the market refuses to do is pay a peer multiple. At about 2.5x EV/EBITDA, Telkom trades at less than half of Vodacom's FY2026 multiple and below MTN, with net debt of only 0.5x EBITDA. Part of that gap is justified. Vodacom and MTN own rest-of-Africa growth that Telkom does not, and investors in 2026 have openly rewarded that exposure over SA-only operators. Part of it is the state shareholding. And part of it is BCX, a shrinking R11 billion revenue line that dilutes everything Consumer and Openserve achieve.

Meanwhile, the share has drifted roughly 24% off its 52-week high and is down about 7% over twelve months, even as headline earnings, free cash flow and the ordinary dividend all rose. That divergence is the real story.

What Would Close the Gap

The re-rating trigger is no longer a sale of Openserve. Management has been clear that Openserve stays. The more credible catalysts are a decisive outcome at BCX, whether a turnaround that stops the revenue decline or a separation that removes it from the group numbers; evidence that prepaid growth holds up without leaning harder on airtime credit; and continued delivery on the higher payout policy of 40% to 60% of free cash flow, which turns a cheap multiple into a cash return investors can actually see.

The risks are equally specific. BCX has been shrinking for years and could keep doing so. Prepaid is a price-led market, and any deterioration in consumer credit quality would hit the fastest-growing part of the business first. And with the state holding around half the shares, minority investors have limited say over how surplus capital is deployed.

The ZAR Take

Telkom is no longer a turnaround waiting to be noticed. It has been noticed, re-rated once and then stalled. The discount that remains is not the market missing mobile growth. It is the market pricing a business with one strong engine, one solid infrastructure asset and one shrinking legacy arm, majority-influenced by the state, with no earnings outside South Africa. Until the BCX question gets an answer, Telkom stays a cash-generative company on a low multiple rather than a re-rating in progress.

This article is for information only and is not investment advice. Figures are drawn from Telkom's FY2026 results and Q1 FY2027 trading update; check the latest data on Telkom's investor relations page. For weekly analysis of the JSE, the rand and SA market data, subscribe to The ZAR Brief.