Our opinion on the current state of BLUETEL(BLU)Blue Label Telecoms (BLT) is a company with a primary focus on selling secure tokens of value, such as airtime, starter packs, and electricity. A significant aspect of its business strategy has been its involvement with Cell-C, in which it acquired a 45% stake in September 2016. The performance of Blue Label's results has been heavily influenced by the financial health of Cell-C.
In April 2019, S&P Global Ratings downgraded Cell-C's debt to CCC- from CCC+, citing an "unsustainable" capital structure. The acquisition of Cell-C has been a substantial investment for Blue Label, costing R7.55 billion, of which R3.9 billion was financed through the issuance of 272 million shares. The high level of debt at Cell-C, which stands at R8.9 billion, presents a significant challenge, especially considering that this debt is almost three times Blue Label's market capitalization, which is under R3 billion.
On 25th August 2021, Blue Label announced that it had secured new financing for Cell-C, providing some relief to the company. On 22nd September 2022, the company further announced that Cell-C would undergo a recapitalization with a R1.03 billion injection from Blue Label, raising its stake in Cell-C to 49.5%. This announcement had a positive impact on Blue Label's shares, reflecting investor optimism.
Despite the challenges, Blue Label has managed to achieve positive cash flows and benefited from the sale of its 3G handset division, which contributed to a reduction in debt levels. In its results for the year ended 31st May 2024, Blue Label reported a 23% decline in revenue, but headline earnings per share (HEPS) increased to 76.08c from 45.55c in the previous year. The company attributed the decline in core headline earnings at Cell-C to factors such as the expiration of certain elements of the revenue-sharing agreement in November 2022, increased expenditure related to the distribution agreement, and higher amortization of handset subsidies.
We had recommended waiting for a break through the downward trendline before considering an investment. That breakthrough occurred on 29th February 2024 at a price of 360c. Since then, the share price has risen to 525c, representing a gain of 45.8% over six months. This upward movement indicates positive momentum, but the share remains influenced by the ongoing developments at Cell-C and the broader financial health of the company.
