Net1 upbeat over Cell C after Blue Label gets nod for recapitalisation funding

• CFO Alexander Smith says company is hopeful the move will help to improve the mobile operator’s business as it struggles with debt and tight market

Net1 UEPS, a payment processor and bill payment platform, is hopeful about mobile operator Cell C’s prospects as funding for a much-awaited recapitalisation of its operations was recently announced.

After more than two years, Blue Label, also a shareholder in the cellphone company, said in August it had secured funding from various banks to recapitalise Cell C.

Cell C has been a drag on Net1 UEPS and Blue Label, both of which bought stakes in the company that has been grappling with nearly R9bn in debt as it struggles to compete in a market dominated by MTN and Vodacom.

The combined R7.5bn investment of Net1 UEPS, which owns a 15% stake in Cell C, and Blue Label, with a 45% holding, has been written down to nil.

Net1 CFO Alexander Smith told investors on Tuesday he is hopeful the funding will help to improve the operator’s business. “We continue to hold our investment in Cell C at a nil value. We are encouraged, however, by the recent announcement by our fellow shareholder, Blue Label Telecoms, that they have raised funding to facilitate a recapitalisation of Cell C.

“Cell C continues to improve its market position and to report improving financial performance. We’re optimistic over its future prospects once the recapitalisation is concluded,” said Smith.

SOLD STAKE

Net1, which previously distributed social grants to more than 10-million recipients, has sharpened its focus on the SA market, exiting loss-making European operations.

In that spirit, the group sold its remaining stake in Liechtenstein-based Bank Frick for $30m (R450m) in February.

With a focus on profitable units and expanding its fintech operations, it remains unclear whether Net1 will hold on to its stake in Cell C once the recapitalisation is done.

Revenue declined 9% to $130.8m (R1.85bn) in the year to end-June, falling almost a fifth in rand terms, with the group saying Covid-19 had a limited effect in its fourth quarter when it returned to profit.

Net1, now worth R3.8bn, has a primary listing on the Nasdaq and a secondary listing on the JSE, and uses its banking and payment technology to distribute low-cost financial and value-added services to small businesses and consumers it says are underserved. It also provides transaction processing services, including being a payment processor and bill payment platform in SA.

The group’s headline loss narrowed to $16.1m in the year to end-June, from $52.3m in the previous year, after turning a profit in the fourth quarter.

“Fiscal year 2021 was a challenging year for Net1, SA and the global economy, but it has also been a productive period for the company,” said group CEO Chris Meyer.

“We believe we have the right team, strategy, technology and operations in place to position the company to effectively serve the large addressable market in SA and provide growth for all stakeholders.”

Having been one of the companies affected by recent unrest in Gauteng and KwaZulu-Natal, the group reported that 173 ATMs were damaged or destroyed, while R9.2m was lost across 80 ATMs and 19 branches were damaged.

Assessments for ATM and branch damages amount to a R34.5m loss. These have been submitted via its insurers to the SA Special Risk Insurance Association, but are yet to be paid.

Net1 shares, which sold at R275 previously, have been trading 27.52% higher over the past 12 months. They remained unchanged at R66.67 on Tuesday.