Blue Label interim earnings rise after Cell C recapitalisation

Shares in Blue Label Telecoms rose on Thursday as the prepaid group noted a more than 10 times increase in earnings for the half year to end-November, driven by the contribution from its 2022 recapitalisation of mobile operator Cell C.

Earlier, the group told investors that core headline earnings for the interim period amounted to R420m, or 47.15c per share, from R35m in the previous comparable period.

The group, which specialises in selling prepaid airtime, electricity and ticketing, reported that the net positive contributions to its basic, headline and core headline earnings for the period, resulting from the recapitalisation of Cell C, were down to a number of factors.

As Cell C’s largest shareholder, Blue Label completed the long-awaited recapitalisation of the troubled mobile company in September 2022. SA’s fourthlargest mobile network operator has struggled to make a profit since it opened in 2001.

It had been laden with longterm debt of R8.7bn, prompting Blue Label and Lesaka Technologies (formerly Net1), which previously had a 15% stake, to write down their combined R7.5bn investment to nil.

Four years after this writedown, Blue Label said in February it had revalued the Cell C investment on its books to R962.5m.

Blue Label is taking control of Cell C with plans to move from a 49.53% stake to about 53%, with the requisite applications having been made to SA’s telecom regulator.

Positive contribution resulting from the recapitalisation include expected credit losses and fair value movements of R3m; a gain on modification of class A preference shares amounting to R11m; finance costs of R178m resulting from increased borrowing related to airtime sale and repurchase obligations, as well as the issuance of preference shares; and finance income of R273m resulting from the loan to Cell C for its debt funding requirements.

Blue Label’s share price closed 2.9% higher at R3.55, giving it a market capitalisation of 3.2bn. However, the share price is down nearly 35% over the past year.

When excluding certain contributions, both positive and negative, core headline earnings fell by R100m to R355m, a 22% drop. This also resulted in a decline in core headline earnings per share to 39.9c.

This drop was mainly due to a decrease of R119m in Comm Equipment Company (CEC), despite a 10% increase by the remaining entities within the group. The fall in CEC’s earnings was due to increased expenditure and “a significant increase in the expected credit loss” compared to the previous period.