Telecommunication sector reviewed with ratings and price targets

In the following article we look at how brokers and clients are viewing shares within the telecommunications sector, as well as see how the charts are reflecting these views. The below analysis looks at Telkom, MTN and Vodacom. While Blue Label Telecoms also forms part of the sector, due to its lower level of liquidity and coverage from brokers, it does not form part of the below analysis.

Salient features of the retail, broker and technical views of Telkom, MTN and Vodacom are as follows:

• IG retail traders with open positions on MTN are mostly bullish on the company
• IG retail traders with open positions on Vodacom are mostly bullish on the company
• IG retail traders with open positions on Telkom are mostly bearish on the company
• The average broker rating (Thomsons Reuters) on Telkom is a sell
• The Average broker rating (Thomsons Reuters) on MTN is a Hold
• The Average broker rating (Thomsons Reuters) on Vodacom is a Hold
• MTN on a technical view is considered overbought in an uptrend
• Vodacom on a technical view has broken out of a rangebound environment
• Telkom on a technical view is in an uptrend which looks to be capitulating

Telkom SA Soc

From a retail trader perspective (as of 7^th of June 2019), 67% of IG clients with open positions on the Telkom expect the price to fall in the near term, while 33% of IG Clients with open positions expect the Telkom price to rise.

A Thomsons Reuters poll (above) of 6 analysts maintain a long-term average rating of sell for Telkom (as of 6 June 2019), with 3 of these analysts recommending a hold, 2 recommending a sell and 1 with a strong sell recommendation on the stock.

A consensus of analyst estimates (from Bloomberg) arrive at a target price of R66.80 for Telkom.

Telkom Technical View

The steepening trend lines on the share price of Telkom warn of what is known in technical analysis as a price blow off. A price blow off is the suggestion that an uptrend has started to accelerate too fast and in turn that a short term correction may be nearing. The price blow off is supported by the stochastic trading well into overbought territory.

The long-term trend does however remain up. Traders who are long may therefore use these signals as a suggestion to exit their trades, but not as an indication to trade short against the prevailing uptrend. Should the price correct, support targets are considered between the 8640 and 8150 levels.

MTN Group

From a retail trader perspective (as of 7^th of June 2019), 79% of IG clients with open positions on the MTN expect the price to rise in the near term, while 21% of IG Clients with open positions expect the MTN price to fall.

A Thomsons Reuters poll (above) of 7 analysts maintain a long-term average rating of hold for MTN (as of 6 June 2019), with 1 of these analysts recommending a strong buy, 1 recommending a buy, 4 hold and 1 with a sell recommendation on the stock.

A consensus of analyst estimates from Bloomberg arrive at a target price of R110.90 for MTN.

MTN – Technical View

The share price of MTN has broken out of a falling wedge pattern to continue its uptrend. The price is now testing resistance at 11000c whilst in overbought territory. Should a correction from overbought territory manifest traders might look for long entry on a pullback towards the 10300-support level, before targeting a move back up to 11000c, a break of which would consider 11500c a further upside target. The bullish short-term view is maintained, provided that the share price of MTN remains above the red trend line on our chart.

The Vodacom Group

From a retail trader perspective (as of 7^th of June 2019), 75% of IG clients with open positions on Vodacom expect the price to rise in the near term, while 25% of IG Clients with open positions expect the Vodacom price to fall.

A Thompsons Reuters poll (above) of 9 analysts maintain a long-term average rating of hold for Vodacom (as of 7 June 2019), with 2 of these analysts recommending a strong buy, 5 hold and 2 with a sell recommendation on the stock.

A consensus of analyst estimates from Bloomberg arrive at a target price of R125.55 for Vodacom.

Vodacom Technical View

The share price of Vodacom has broken out of broad sideways consolidation identified between levels 10950 and 12150. The breakout see’s gap resistance at 12800c as the next upside target, a break above this level would consider 13300 as a further upside target.

In summary

Telkom see’s the highest percentage of short positions maintained by IG clients within the sector. Analysts polled by Thomsons Reuters tend to agree with IG clients on Telkom, as noted by the average rating of sell for the stock. With (Bloomberg) consensus estimates arriving at a long-term price target of R67.80 for Telkom, the current share price nearing R100 (as of 10 June 2019) suggests the share to be trading at a significant premium to what is deemed fair value for the stock. The charts further support the view that Telkom looks to be overbought at current levels.

The MTN and Vodacom group see IG clients with a strong bullish bias to positions on these stocks. Both these shares shares do however trade near the long-term price targets (Bloomberg). The average broker ratings’ (Thomsons Reuters) of hold on MTN and Vodacom, suggest that these stocks are trading at around fair value at present. The charts show positive momentum for both MTN and Vodacom, although recent gains have pushed these shares into overbought territory. Traders following the technical picture might prefer to see a short-term pullback (and wider discount to fair value) before looking for long entries into these counters.