How Blue Label will try to change the market’s mind about Cell C

Blue Label’s co-chief executives, Brett and Mark Levy on Wednesday moved to temper market expectations over its recent acquisition of South Africa’s third largest mobile operator, Cell C.

Shares in Blue Label Telecoms initially nosedived on Tuesday – dropping 8% – after the group published Cell C’s results on the JSE’s newswire service, which showed the mobile operator to be making a significant loss.

The Levy brothers’ woes were then exacerbated further on Wednesday when the technology group released its financials for the full year 2018, showing only a marginal increase in revenue.

Shares tumbled from R8.50 to R6.80 over the course of two days, and is down from R14.96 since January. In trade on Thursday, however, Blue Label advanced 7.45% to R7.36, giving the company a market cap of just over R7 billion.

The company’s chief executive said that the price performance was 100% related to Cell C, but insisted that “the punishment doesn’t fit the crime.”

“Blue Label is a strong business,” Brett Levy told journalists at the company’s headquarters in Sandton on Wednesday.

Blue Label acquired 45% of Cell C in August 2017, for R5.5 billion. Levy said that the acquisition of Cell C was ‘very deliberate’ as it compliments Blue Label’s core business.

“We didn’t buy it because we had to buy it; we didn’t buy it because we felt like another asset; we bought it because of the tremendous value we think it could add.”

“We paid a great price for it,” Levi said, adding that it was a distressed asset. This is about a strategy,” he said, adding that the company is ahead in every line-item since the acquisition – less than a year ago.

“We are going to be a tremendously strong number three network,” he said, highlighting several key pillars the group will focus on, led by its strength in wholesale.

“We will implement a very serious third network, and you will all see the results,” he said, noting a time frame of between one and three years.

Not at war with the big dogs

Levy stressed that the company is not in a fight with MTN or Vodacom, which currently dominate the South African mobile market.

“We are never going to be an MTN or Vodacom. We’re not chasing subscribers, we’ve pulled back in the fight,” Levy said.

He said the group had been more stringent in credit vetting under the current economic climate in order to ensure profitability.

“It is a new Cell C, we are eight months in. Give us a chance to be guilty before you crucify us. We are confident in what we have bought, we do listen to the market,” Levy said. “It takes time, effort and money to implement a strategy.”

He denied that there was debt problem after Cell C raised a new R1.4 billion debt facility, which Levy said is for capex – the money required for Cell C to be profitable. “We don’t have a debt problem or cash raising problem. It’s already in place,” Levy said.

Most notably, in the wholesale chain, which climbed 50% over the year, Levy pointed out that Cell C has 54 mobile virtual network operators (MVNOs) on its network – “it’s growing rapidly,” he said. Cell C’s MVNO subscriber base was up 31% to 1.7 million.

“There are brands out there dying for an MVNO. This is only the beginning,” Levy said. He said that the group has signed Afrihost and Internet Solutions, both of which have massive databases.

Additional focus areas going forward will include delivering content, through Black, Cell C’s streaming service, and fibre-to-the-home (FTTH), Levy said. “We will play a massive role in the future of fibre-to-the-home in this country,” he said, stating that Cell C is the second largest ISP in the country for FTTH.

Levy said the thing he is most excited about, is the strategy around video-on-demand platform, Black.

“We have capacity on the network and the spectrum,” he said, cautioning however, that it will be a long-term play.

Cell C pillars



Read: Cell C adds 600,000 subscribers to climb to 16.3 million

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How Blue Label will try to change the market’s mind about Cell C