Blue Label backs Cell C
BEARISH MARKET: MOBILE OPERATOR’S 45% STAKEHOLDER IS BULLISH
CEO defends his company’s investment.
Blue Label Telecoms joint CEO Brett Levy is astonished at market jitters around the solvency and turnaround prospects of the company’s telecommunications subsidiary Cell C.
Blue Label’s already-hammered shares have faced a renewed selloff, with about R1 billion wiped off its market capitalisation over the past two days, bringing its losses so far this year to 49%.
“Where exactly is Cell C going wrong? We need time to be proven innocent before we are proven guilty. The punishment does not fit the crime,” says Levy, referring to Blue Label’s investment in Cell C and the plunge in its share price.
For the year ended May 2018, Blue Label’s revenue grew by 1% to R26.8 billion and headline earnings per share grew by 1% to 115.42 cents.
In the eyes of investors, Blue Label overpaid for Cell C when it shelled out R5.5 billion for a 45% stake in SA’s third largest telecommunication company. The acquisition was completed in August 2017.
Others are convinced that Blue Label – which specialises in the distribution of prepaid products, including airtime and electricity – bought into a business that isn’t living up to expectations. After all, Cell C’s only annual profit was realised in 2017, after struggling to break even since its 2001 launch.
Investors are still spooked by Cell C’s interim results released this week, which show that the firm is running at losses, handset sales have fallen sharply, and its debt load is expected to swell. Although Cell C’s service revenues grew by 11% to R6.9 billion for the six months to June 2018, the growth was stunted by a fall in handset sales and data subscribers. Its losses were trimmed to R645 million from R968 million the previous year.
Levy launched a robust defence of Blue Label’s acquisition of Cell C, saying it has only been eight months (between its acquisition and the company’s 2018 year-end).
“We didn’t buy Cell C because we felt we needed another asset. We bought it because we knew there was a tremendous value we can add to the company.”