Blue Label Telecoms tanks on Cell C investment jitters
BLUE Label Telecoms, the majority owner of Cell C, tanked to its lowest level since 2009 on disappointing financial results for the six months to November and as the write down on Cell C’s investment rattled investors.
Mobile operator Blue Label, founded by brothers Brett and Mark Levy, plummeted 18.63 percent to R4.93 a share, valuing the company at R5.5 billion, after saying Cell C’s net loss had amounted to R634 million in the half year to November.
“The negative movement to Group core headline earnings by Cell C amounted to R1.05 billion,” said Blue Label.
Blue Label said last week that the Buffet Consortium, backed by billionaire Jonathan Beare, had agreed to acquire a minority stake in Cell C to beef up the balance sheet.
The problems at Cell C come amid heated competition from rivals MTN, Vodacom and Telkom, which this week were grappling with new regulations by the telecoms regulator on roll-over data.
Rain, South Africa’s data-only network, said this week that it had partnered with Chinese Huawei to roll out the high-speed 5G network by the middle of the year.
Blue Label said yesterday that headline earnings for the six months ended November 30 amounted to a negative 11.39 cents a share.
Group revenue declined by 10 percent to R12.3bn. Prepaid airtime, data and related revenue declined 7 percent to R15.1bn from R16.1bn in the previous period.
Asief Mohamed, chief investment officer at Cape Town-based Aeon Investment Management, said the write-down of the Cell C investment was a clear indication that management had overpaid for it.
“The strategic rationale of the Cell C acquisition or injection of new capital must be questioned. It appears that this may have been done to protect the historic quality of earnings and not in the best long-term interests of shareholders,” said Mohamed.
In 2017 Blue Label paid R5.5bn for a 45 percent stake in Cell C.
Mohamed said interpreting the quality of earnings was made more complicated by the number of acquisitions over the past couple of years.
“This forces one to question the quality of historic earnings reported by Blue Label Telecom,” said Mohamed.
Earlier yesterday Cell C appointed industry veteran Douglas Stevenson as its interim chief executive with effect from today in an effort to turn its fortunes as a mobile which has struggled to gain market share in a competitive operating environment.
Stevenson, currently the company’s chief operating officer, replaces Jose Dos Santos (who resigned last week) and is expected to lead the struggling company’s strategy of improving network quality and coverage.
Kuben Pillay, chairperson of the Cell C board, said Stevenson’s appointment was line with achieving the company’s objectives, strategic imperatives and long-term vision.
“Douglas has a proven track record in successful planning, execution and negotiation at various organisational levels and we believe he will add tremendous value to the Cell C leadership team,” said Pillay.
Dos Santos resigned to become a Cell C consultant, offering strategic advice to Pillay.