Blue La­bel a rose among the thorns

Sky is the limit for its vir­tual elec­tronic prod­ucts.

Finweek English Edition - - MARKETPLACE - Ed­i­to­rial@fin­

with­one ex­cep­tion, the top 12 strong­est shares on the JSE are com­mod­ity com­pa­nies, with two mar­ginal gold-min­ing groups, DRDGold and Har­mony, at the top of the list. The ex­cep­tion is Blue La­bel Tele­coms, which has been catch­ing the eye of in­vestors for some time, es­pe­cially be­cause it not only dom­i­nates the South African mar­ket in its niche, but also be­cause of in­creas­ing signs that it’s be­ing suc­cess­ful in two huge for­eign mar­kets.

Its share price has dou­bled over the past 12 months.

In In­dia, with its pop­u­la­tion of around 1.2bn people, more of its de­vices have been in­stalled than in SA, while a far larger net­work has been es­tab­lished in Mex­ico with its fast-grow­ing pop­u­la­tion of close on 130m.

Blue La­bel’s core busi­ness is the se­cure vir­tual dis­tri­bu­tion of value to­kens, pre­dom­i­nantly for ser­vices such as pre­paid air­time, elec­tric­ity and the trans­fer of money. In SA it has al­ready in­stalled 150 000 point-of-sale de­vices in this re­spect. In In­dia it has a net­work of more than 200 000 units in part­ner­ship with a lo­cal group, Ox­i­gen Ser­vices, and it has hardly touched on that enor­mous mar­ket. In Mex­ico the net­work con­sists of about 650 000 units with thou­sands of new de­vices wait­ing to be added. Cell­phone pen­e­tra­tion in this coun­try is close on 70%.

The strength of its po­si­tion in SA is ev­i­dent from the fact that all the large cell­phone groups make use of its ser­vices. It ef­fec­tively has a mo­nop­oly in this coun­try.

But it is the rapid growth in e-trade that has made its fi­nan­cial ser­vices di­vi­sion par­tic­u­larly ex­cit­ing. In In­dia e-trade is still tiny in re­la­tion to the po­ten­tial size of the mar­ket, but it’s grow­ing fast as, among oth­ers, cell­phone pen­e­tra­tion is in­creas­ing.

An im­por­tant fea­ture of the group is that it gen­er­ates lots of cash and it is likely to pro­duce ex­cel­lent re­sults for the year to end May. In the half-year to November, its rev­enue in­creased by 25% to R12.9bn, its gross profit rose by 17% to R919m and head­line earn­ings in­creased by 25% to 53.26c/share.

But as is the case with other rapidly grow­ing groups, for ex­am­ple, Curro, rapid ex­pan­sion re­quires a lot of cap­i­tal and one has to wait pa­tiently for it to be­come prof­itable. For ex­am­ple, in Mex­ico, the group has to add new de­vices and ser­vices on a large scale to ex­ploit the mar­ket po­ten­tial, which means that for the fore­see­able future it is un­likely to con­trib­ute any profit. How­ever, once the mar­ket has ma­tured, the cash­flow would be exceptional.

Among the weak­est shares, when mea­sured in terms of the per­cent­age dif­fer­en­tial be­tween a share’s price and its 200-day ex­po­nen­tial moving av­er­age (EMA), Lon­min re­mains at the top of the list, with PPC, which is ex­pe­ri­enc­ing so many set­backs, in sec­ond place. Nam­pak is third, ly­ing more than 20% below its av­er­age after it has, among other things, passed its in­terim div­i­dend.

Among the shares that re­cently broke through their EMAs, African Rainbow Min­er­als (ARM), We­sizwe, Growth­point, Im­plats, Glencore, Bar­clays Africa and Stan­dard Bank look in­ter­est­ing.

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