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Cell C valued at R3.1bn after latest fund raise

Samuel Mungadze
By Samuel Mungadze, Africa editor
Johannesburg, 23 Feb 2023
Blue Label joint-CEOs Mark and Brett Levy.
Blue Label joint-CEOs Mark and Brett Levy.

Cell C is valued at R3.1 billion, the telco’s biggest shareholder, Blue Label Telecoms, revealed today, after the telco received fresh capital in September.

This, as Blue Label announced the reversal of Cell C impairment on its books, saying “of the accumulated impairment of R2.5 billion, R962.5 million was accounted for as a reversal of impairment of investment in associate”.

Blue Label today released its results for the six months ended in November, disclosing the value-in-use of its stake in Cell C as at 30 November 2022 equated to R1.5 billion.

The company explains: “An internal valuation was performed by Cell C in order to determine the value-in-use of Cell C based on cash flow projections incorporated in its five-year business plan. Assumptions relating to the business, the industry and economic growth were applied. Cash flows beyond this point were then extrapolated, applying terminal growth rates.

“The discount rates used are pre-tax and reflect specific risks related to Cell C. The valuation incorporates the effects of recapitalisation, which was effective end-September 2022. Considering Cell C has recently undertaken a financial recapitalisation, management was required to apply a probability of distress overlay to the discounted cash flow valuation. Assumptions related to the Moody’s rating of both Cell C and Blue Label Telecoms were taken into account, given the strategic relationship between the two companies.”

The long-awaited Cell C recapitalisation was closed in September, after its lenders accepted an offer of 20c for every R1 of debt.

At the time, Blue Label joint-CEOs Mark and Brett Levy detailed assistance to Cell C, saying a Blue Label company, The Prepaid Company (TPC), will “purchase Cell C prepaid airtime for a purchase price of R1.2 billion (inclusive of VAT) on the effective date”.

Today, Blue Label divulged TPC’s equity share of R962.5 million in Cell C as at 30 November 2022 reflected a partial recovery following the implementation of the recapitalisation.

It said the recovery in value is attributable to the following:

  • A significant decrease in interest-bearing borrowings in line with a compromise offer made by Cell C to certain of its secured lenders in line with the recapitalisation transaction.
  • An increase in cash flow generation over the forecast period due to improved trading on the back of less constrained cash flows; however, this was more than negated by the effects of the increase in the discount rate.
  • A decrease in the value of capitalised finance lease contracts due to the restructuring thereof.
  • An increase in the value of the assessed loss tax shield due to earlier utilisation.

Turning to group results, Blue Label reported that revenue climbed 8% to R9.8 billion; gross profit increased by 13% to R1.54 billion (2021: R1.36 billion); and core headline earnings for the period ended 30 November 2022 amounted to R35 million, equating to core headline earnings of 3.94c per share.

“The core businesses of the Blue Label Group continued to generate further growth in revenue, gross profit and core headline earnings per share for the six-month period ended 30 November 2022. The predominant extraneous contributions to the November 2022 basic, headline and core headline earnings per share, emanated primarily from the recapitalisation transaction of Cell C.

“In the comparative period, core headline earnings amounted to R549 million, of which R548 million related to continuing operations and R1 million to discontinued operations. Core headline earnings amounted to 62.69c per share.”