Almost four years after Blue Label Telecoms wrote down its stake in Cell C, the prepaid specialist has now positively revalued its investment after a recapitalisation of the mobile provider.
Blue Label, Cell C’s largest shareholder, completed the long-awaited recapitalisation of the troubled mobile operator in September. SA’s fourth-largest mobile network operator has struggled to make a profit since it opened for business in 2001.
It had been laden with long-term debt of R8.7bn, prompting Blue Label and Lesaka Technology (formerly known as Net1), which previously had a 15% stake, to write down their combined R7.5bn investment to nil.
On Thursday, the company, now worth R4.67bn, said it had positively revised the value of Cell C on its books to R962.5m, as it reported interim earnings to November.
The group also announced that Lazarus Zim had stepped down from its board of directors. Zim is the founder and chair of Zanozi Properties & Commodities, and a former CEO of Anglo American.
Blue Label, run by brothers Brett and Mark Levy, says Cell C has implemented a turnaround strategy, focusing on operational efficiencies, reducing operational expenditure and optimising traffic. This includes a reduction in capital expenditure and of a fixed-cost infrastructure-based network to a variable operational expenditure model.
The group — which specialises in selling prepaid airtime, electricity and ticketing — reported that revenue rose by R710m to R9.8bn, amounting to growth of 8%. Including PINless top-ups, prepaid electricity, ticketing and gaming, which are recognised as revenue on imputing gross revenue, the effective growth in revenue was R3.1bn or 9% to R39.3bn.
Blue Label said core headline earnings for the period amounted to R35m, translating to 3.94c per share.
In the previous comparable period, core headline earnings amounted to R549m, of which R548m related to continuing operations and R1m to discontinued operations. Core headline earnings per share (Heps) for that period were 62.69c per share.
The drop in earnings was largely due to the recapitalisation of Cell C. Given that Blue Label has written up the value of Cell C, it has had to recognise losses incurred by the mobile operator in the intervening period since the write-off in 2019. These losses had gone unrecognised because the value of Cell C was written down to zero.
“Core earnings for these interims were up an impressive 14% year on year, which is notable in our current economic environment,” independent analyst Philip Short said.
He said the write-up value of Cell C would be very low, due to Blue Label and the independent auditors erring on the side of caution and being conservative. As such, the writes-ups were likely to occur every 6-12 months as the mobile operator showed its performance.
“I believe Blue Label are going to take control of Cell C — take ownership over 50% — and you’d prefer to do that at a lower valuation,” Short said.
The losses recognised at Cell C from 2019 to 2022 are historical noncash items and “do not reflect the current operating environment at Blue Label or Cell C”.
Since the recapitalisation and the tie-up with Capitec through its Cell C back mobile virtual network, things are looking up, he said.
This sentiment probably explains the positive reaction to Blue Label’s earnings report as shares rose 5.36% on Thursday to R5.11.
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