Cell C breakeven in 2017?

·27 Jul 2015

Standard & Poor’s Ratings Services has affirmed its ‘B-‘ long-term corporate credit rating on mobile operator Cell C.

The outlook is stable, it said, noting that it removed the rating from CreditWatch with negative implications, where it had placed Cell C on June 1, 2015.

Cell C realized positive working capital changes in June 2015 to fulfil the redemption of its R2 billion unsecured debt. It subsequently issued R3.3 billion of notes to restore its liquidity.

“In our opinion, Cell C’s business risk profile is primarily constrained by its relatively weak market position as the No.3 operator in South Africa’s mature four-player mobile telephony market,” S&P said.

“We understand that Cell C’s strategy involves sizable investments in its network and operations. Management hopes that these investments will enable the company to increase its market share to at least 15% over the next three years and rapidly increase revenues and EBITDA from 2015,” it said.

The ratings firm forecast increasing revenue growth over the next three years, ‘as Cell C garners more prepaid customers thanks to its competitive pricing strategy and support from asymmetric mobile termination rates’.

“Although we see potential for Cell C’s investments to result in meaningful revenue growth, the improvement in profitability required to achieve breakeven within the next three years may be challenging and relies on better prices for telecoms services, in our opinion.

“If Cell C obtains additional funding sources, we believe it will continue to expand its market share and improve margins, although we do not expect the company will achieve breakeven before 2017,” S&P said.

Outlook

S&P said that a stable outlook on Cell C reflects its expectation that the company has secured ample liquidity to cover its current capital spending and debt maturity needs.

“We expect top-line growth in 2015 as Cell C increases prepaid customers as a result of its competitive pricing strategy supported by the reduction of mobile termination rates.

“We expect the company’s continued investment in operations, despite operating in a high-cost environment and inflexible competitive space, will result in negative cash flow and that the company will continue to rely on external funding sources through 2017.”