Our opinion on the current state of BLU

Blue Label Telecoms (BLT) operates in the telecommunications sector, focusing on the distribution of secure tokens of value, including airtime, starter packs, and electricity. A significant development in its corporate journey was the acquisition of a 45% stake in Cell-C in September 2016, making Cell-C's performance a pivotal factor in Blue Label's financial results. In April 2019, S&P Global Ratings downgraded Cell-C's debt rating due to concerns about its unsustainable capital structure, highlighting the challenges faced by Blue Label in improving Cell-C's profitability. The acquisition cost of Cell-C's stake amounted to R7.55 billion, partially financed by issuing 272 million shares worth R3.9 billion.

Cell-C's debt escalated to R8.9 billion, nearly tripling Blue Label's market capitalization, which stands at less than R3 billion. Despite these challenges, Blue Label announced new financing arrangements for Cell-C on 25th August 2021, followed by a significant recapitalization on 22nd September 2022, where Blue Label injected R1.03 billion into Cell-C, increasing its stake to 49.5%. This move positively impacted Blue Label's shares, reflecting investors' optimism about Cell-C's future.

Blue Label has managed to maintain positive cash flows, aided by the sale of its 3G handset division, which contributed to reducing debt levels. For the fiscal year ending on 31st May 2023, the company reported a revenue of R18.6 billion and a profit of R288.1 million, a decrease from R1091.1 million in the previous year. This decline was attributed to the recognition of accumulated losses from Cell-C, capped at R1.329 billion, which includes a partial reversal of the initial impairment of Blue Label's investment in Cell-C and additional investments amounting to R366 million.

For the six months ending on 30th November 2023, Blue Label estimated HEPS to be between 45.87c and 45.95c, a significant improvement from 2.09c in the previous period, largely due to the recapitalization of Cell-C. However, Blue Label's share price has experienced a downward trend since August 2022. A notable turnaround occurred on 23rd November 2023 when the share price broke through the downward trendline at 343c, subsequently rising to 355c.

On 23rd March 2023, the company announced the resignation of Douglas Stevenson as CEO of Cell C effective 31st March 2023, marking another significant change in the company's leadership. Given the recent improvements and strategic initiatives, Blue Label Telecoms appears to be navigating its challenges with Cell-C, offering potential value to investors willing to monitor its progress closely.