Telkom SA SOC Ltd (JSE:TKG) Is Going Strong But Fundamentals Appear To Be Mixed : Is There A Clear Direction For The Stock?

Telkom SA SOC (JSE:TKG) has had a great run on the share market with its stock up by a significant 14% over the last month. However, we wonder if the company’s inconsistent financials would have any adverse impact on the current share price momentum. In this article, we decided to focus on Telkom SA SOC’s ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company’s management is utilizing the company’s capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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ROE can be calculated by using the formula:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity

So, based on the above formula, the ROE for Telkom SA SOC is:

10% = R3.5b ÷ R34b (Based on the trailing twelve months to September 2025).

The ‘return’ is the yearly profit. So, this means that for every ZAR1 of its shareholder’s investments, the company generates a profit of ZAR0.10.

See our latest analysis for Telkom SA SOC

We have already established that ROE serves as an efficient profit-generating gauge for a company’s future earnings. Depending on how much of these profits the company reinvests or “retains”, and how effectively it does so, we are then able to assess a company’s earnings growth potential. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don’t have the same features.

As you can see, Telkom SA SOC’s ROE looks pretty weak. Not just that, even compared to the industry average of 21%, the company’s ROE is entirely unremarkable. Therefore, it might not be wrong to say that the five year net income decline of 3.6% seen by Telkom SA SOC was possibly a result of it having a lower ROE. However, there could also be other factors causing the earnings to decline. Such as – low earnings retention or poor allocation of capital.

That being said, we compared Telkom SA SOC’s performance with the industry and were concerned when we found that while the company has shrunk its earnings, the industry has grown its earnings at a rate of 17% in the same 5-year period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company’s expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. Has the market priced in the future outlook for TKG? You can find out in our latest intrinsic value infographic research report.