Blue Label plunges 25% on poor results

Blue Label Telecoms, which distributes prepaid electricity and airtime, lost more than a quarter of its market value on Thursday after releasing disappointing interim results.

The group’s shares closed 25.5% lower at R4.56, the biggest daily decline since listing in 2007. It has a market capitalisation of R4.2bn.

Blue Label reported a core headline loss of R105m for the six months to end-November, with its share of losses from Cell C amounting to R123m.

It owns a 45% stake in SA’s third mobile network operator Cell C.

The group reported that revenues fell 10% to R12.3bn, dragged lower by a 22% decline in prepaid airtime and data sales.

“Prepaid sales were very weak. We know the consumer’s under immense pressure, so it’s nothing new, but this is their bread and butter,” said Imtiaz Suliman, portfolio manager at Sentio Capital.

Suliman said the market was also unhappy with Cell C’s loss and its higher debt levels — the operator’s loans and borrowings grew from R6.8bn to R8.9bn.

To bolster the operator’s balance sheet, Blue Label said last week a consortium of investors led by billionaire property mogul Jonathan Beare had agreed to take a minority stake in Cell C.

Suliman said the deal would “alleviate some short-term funding concerns”.

Blue Label joint-CEO Brett Levy declined to comment on the specifics of the deal on Thursday, but said the consortium was backed by institutions and people with expertise in the telecommunications sector.

He said Cell C was on track to make a profit in 2020.

At about the same time it turns profitable, Blue Label plans to either list Cell C or bring in a strategic partner.

That could be “anyone — if it makes strategic sense”, he said.

People familiar with the matter told Business Day in 2018 that Telkom was eyeing a full takeover of Cell C via a cashless merger.

Telkom’s preference was to fund the deal by issuing shares to Cell C’s owners, which include Net 1, the people said.

Blue Label’s shares have lost nearly three-quarters of their value since the group bought into Cell C in August 2017. Investors have been concerned about the mobile operator’s ongoing funding needs.

Levy said Blue Label had a “phenomenal six months” considering the difficult trading environment and a number of one-off items in the prior year that had inflated its comparative numbers.

The company aimed to have 150,000 informal traders using its point-of-sale devices within three years.

Those devices allow traders to sell tickets, prepaid utilities and airtime.

Levy said Blue Label expected its Mexican business to reach profitability by May.

The group was in talks to sell part or all of its 58%-held Indian operation, which has a carrying value of about $27m.