JSE-listed Blue Label Telecoms is reaping financial benefit from its investment in Cell C, as its headline earnings per share (HEPS) shot up in the year to May.
It has committed to listing the operator to ensure its strength for the foreseeable future.
The company, which this morning announced it has rebranded as Blue Unlimited (BLU) to enable a simpler view of its operations, bought a 45% stake in the operator for R5.5 billion in 2017 and has since been pursuing a controlling shareholding.
Although Cell C was initially valued at nil, Blue Label says its results for the year to May include a “net positive extraneous” contribution to group earnings from the investment, which it is implementing through its wholly-owned subsidiary, The Prepaid Company (TPC).
Its results booklet shows Cell C’s contribution drove a 281.5% increase in earnings per share (EPS) and a 519.17% rise in HEPS, based on ITWeb calculations using the per-share figures provided.
Excluding Cell C, EPS still grew 262%, while HEPS gained around 260%, according to the results booklet.
Added value
Cell C’s contribution came from several factors, including fully reversing the initial impairment of R2.5 billion, as the operator’s equity value has improved. At the same time, Blue Label fully recognised its share of Cell C’s accumulated net losses of R1.607 billion, carried on its books between June 2019 and May last year.
This enabled Blue Label to report positive headline earnings adjustments of R1.585 billion, attributable to the reversal of the group's share of historical impairments recognised by Cell C of R3.144 billion, partly offset by the reversal of the previously recognised impairment of R1.559 billion.
With a current shareholding of 49.5%, Blue Label is seeking final regulatory approval to buy an additional 4.04% stake, which would take its ownership to 53.5%, giving it a controlling stake.
TPC, Blue Label’s first trading name, has grown into an entity worth R14.77 billion, having started in 2001 with co-founders and now co-CEOs Brett and Mark Levy, who sold car radios from their vehicle’s boot. TPC is now the engine driving Blue Label’s acquisition of a larger Cell C stake.
Earlier this month, during Competition Tribunal hearings, the Competition Commission recommended approval of the deal, saying it would give Cell C “another chance at life”, given its poor financial position. Tribunal approval is one of the final hurdles, following ICASA’s approval of the transfer of control of Cell C’s licences to Blue Label.
Six days ago, the tribunal unconditionally approved a merger in which Cell C will acquire Comm Equipment Company from TPC, as part of Blue Label’s takeover bid – which is a postpaid base going back to “its rightful home”, says Mark Levy. “Exciting times ahead.”
Blue Label previously hinted at listing Cell C, which would be a milestone that several previous Cell C CEOs failed to achieve. The company says a listing would “streamline Cell C’s capital structure and balance sheet”. It would also allow the operator to stand on its “own merits” and give Blue Label investors a clearer view of the company’s value.
Mark Levy says the company is seeking to ensure “all of the ghosts of the past are gone” and enable Cell C to stand on its own for at least the next 20 years. “We will fix the balance sheet; we will split Cell C out of Blue Label.
“The new BLU is a more focused, integrated and agile organisation, designed to capture growth opportunities and deliver sustained value in a fast-changing digital economy.”
Group revenue came in at R14.1 billion, while gross profit rose 2% to R3.375 billion, with margins improving from 22.57% to 24.02%. This was partly driven by growth in PIN-less top-ups, prepaid electricity, ticketing and universal vouchers, where only the gross profit is recognised as revenue.
“This year’s results are a testament to the strength of our core businesses and the depth of our relationships across every segment we serve. But more importantly, they set the stage for what comes next,” comments Mark Levy.
Blue Label’s shares have gained 409% over the past five years, which analysts say is largely due to the Cell C acquisition. However, as of mid-morning, its stock was down 8.55% on yesterday’s close, suggesting shareholders were disappointed by the numbers.
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