Blue Label a rose among the thorns
Sky is the limit for its virtual electronic products.
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.