Blue Label shares dive as interim income falls 23%
Blue Label Telecoms shares slumped 7.5% on Thursday after the group reported a steep drop in revenue for the six months to end-November, mainly as a result of a poor performance by the group’s specialist finance business, Comm Equipment Company.
However, the stock recovered some of the losses in the afternoon and were trading 1.73% lower at R3.41 by 4.20pm.
Comm Equipment reduced core headline earnings by R119m, though earnings from the other units increased by R19m year on year.
The group, which specialises in selling prepaid airtime, electricity and ticketing, said the anticipated decline in Comm Equipment’s earnings was due to increased expenditure related to a distribution agreement, as well as a significant increase in expected credit losses.
“This increase [in expected credit losses] aligns with the expansion of Comm Equipment’s book and the deteriorating macroeconomic environment in SA, marked by rising interest rates, power outages and a depreciating rand. Comm Equipment has increased its expected credit losses, aligning with the approach taken by other consumer lenders,” Blue Label said in a statement.
Still, co-CEO Brett Levy is confident about the profitability of the unit, which helps manage part of Cell C’s contract customer base.
“Revenue is good. Gross profit was down. That was down to distribution costs going up a lot,” he said.
“We’re still doing 30,000 to 40,000 of renewals and new contracts a month. Double-digit growth of revenue is no longer realistic, but increases on profit per customer are.”
Group revenue declined 23% or R2.2bn to R7.6bn. However, because only the gross profit earned on “PIN-less top-ups”, prepaid electricity, ticketing and universal vouchers is recognised as revenue, the effective growth in revenue translated to R4.5bn, an increase of 12%.
PIN-less revenue refers to revenue from “top ups” in transactions including for airtime or prepaid electricity, when users do not have to enter a PIN.
Total revenue was R43.8bn compared with R39.3bn previously, while gross profit grew 4% to R1.6bn. Core headline earnings amounted to R420m, or 47.15c a share.
That excludes a contribution of R65m in the current period and a loss of R421m in the prior period, primarily resulting from the recapitalisation of Cell C. With those amounts included, core headline earnings per share declined 23% to 39.90c compared with 51.72c a year earlier.
As Cell C’s largest shareholder, Blue Label completed the long-awaited recapitalisation of the troubled mobile company in September 2022.
The country’s fourth-largest mobile network operator has struggled to make a profit since it opened in 2001. It had been laden with long-term 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 by increasing its 49.53% stake to about 53%, with requisite applications having been made to SA’s telecom regulator.
Like many other businesses, Blue Label has been hit by persistent power cuts.
“Load-shedding continues to be a significant challenge faced by our organisation. It has negatively impacted the sale of prepaid electricity, prepaid airtime, starter packs and our call centre operations, all of which are significant revenue streams for the group,” the company said.
THE DECLINE IN COMM EQUIPMENT’S EARNINGS WAS DUE TO HIGHER EXPENDITURE RELATED TO A DISTRIBUTION DEAL