Our opinion on the current state of BLU

Blue Label Telecoms, a company known for selling secure tokens of value such as airtime, starter packs, and electricity, has faced significant challenges, particularly due to its investment in Cell-C. Acquiring a 45% stake in Cell-C in September 2016 for R7,55 billion, Blue Label's financial performance has been closely tied to the fortunes of the mobile operator. Cell-C's financial struggles, highlighted by S&P Global Ratings' downgrade of its debt to CCC- in April 2019, have placed considerable pressure on Blue Label. With Cell-C's debt reaching R8,9 billion, nearly three times Blue Label's market capitalization, the sustainability of Cell-C's capital structure has been in question.

Efforts to stabilize Cell-C have included obtaining new financing and a significant recapitalization in September 2022, with Blue Label injecting an additional R1,03 billion to increase its stake to 49.5%. These moves, along with the sale of Blue Label's 3G handset division, have aimed to improve cash flow and reduce debt levels. Despite these efforts, for the six months ending on 30th November 2023, Blue Label reported a 23% decline in revenue and a 22% drop in HEPS, attributing the core headline earnings decline primarily to a decrease in Comm Equipment Company (CEC).

The challenges facing Blue Label and Cell-C underscore the complexities of the telecommunications industry, especially for companies dealing with high levels of debt and competitive markets. As Blue Label continues to navigate these challenges, investors and stakeholders will be closely watching for signs of recovery and stability. The resignation of Douglas Stevenson as CEO of Cell C in March 2023 adds another layer of uncertainty to the company's future direction. For those considering investing in Blue Label Telecoms, it may be prudent to wait for a clear sign of improvement in the company's financial health and strategic direction.