{"id":811931,"date":"2025-02-17T13:00:00","date_gmt":"2025-02-17T11:00:00","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=811931"},"modified":"2025-02-17T12:13:42","modified_gmt":"2025-02-17T10:13:42","slug":"serious-warning-about-one-of-south-africas-top-companies","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/telecommunications\/811931\/serious-warning-about-one-of-south-africas-top-companies\/","title":{"rendered":"Serious warning about one of South Africa\u2019s top companies"},"content":{"rendered":"\n

Shane Watkins from All Weather Capital warned that investors should be concerned about corporate governance issues at Blue Label Telecoms.<\/p>\n\n\n\n

Blue Label denied that there should be concerns, saying all transactions between related parties follow stringent corporate governance processes.<\/p>\n\n\n\n

Blue Label Telecoms is one of the largest telecommunications and IT companies in South Africa, best known for its prepaid products.<\/p>\n\n\n\n

It helps companies to sell prepaid airtime, electricity tokens, event tickets, mobile starter packs, and vouchers.<\/p>\n\n\n\n

It was listed on the Johannesburg Stock Exchange (JSE) in 2007, and its share price grew by 144% over the next decade.<\/p>\n\n\n\n

However, one decision crushed the company. Blue Label acquired a 45% stake in Cell C for R5.5 billion in August 2017.<\/p>\n\n\n\n

Cell C, which was already struggling at the time of the acquisition, continued to deteriorate, and Blue Label ultimately had to write down its investment to nil.<\/p>\n\n\n\n

The Cell C debacle caused Blue Label\u2019s share price to plummet by over 90%, destroying R16 billion in shareholder value.<\/p>\n\n\n\n

Despite the tremendous financial pain, Blue Label doubled down on its Cell C investment and launched another recapitalisation and turnaround plan.<\/p>\n\n\n\n

The latest recapitalisation saw Blue Label, through the wholly owned The Prepaid Company, lend Cell C R1.03 billion to pay off debt claims and purchased R2.4 billion in airtime.<\/p>\n\n\n\n

Blue Label’s latest financial results revealed that The Prepaid Company has a 63.19% economic interest in Cell C, much higher than the previous 45%.<\/p>\n\n\n\n

To gain full control over Cell C, Blue Label Telecoms applied to transfer Cell C\u2019s telecommunications licenses to The Prepaid Company.<\/p>\n\n\n\n

On 24 January 2025, the Independent Communications Authority of South Africa (ICASA) approved the transfer.<\/p>\n\n\n\n

Cell C also has a new chief executive, Jorge Mendes, who appointed a new management team to steer the company\u2019s turnaround strategy.<\/p>\n\n\n\n

Mendes and Blue Label co-CEOs Brett and Mark Levy are optimistic about Cell C\u2019s prospects despite its previous struggles.<\/p>\n\n\n\n

\u201cWe are optimistic about the positive signs of change at Cell C evidenced over the past year. Efforts to stabilise the company are clearly starting to bear fruit,\u201d they said.<\/p>\n\n\n\n

\u201cThe new leadership team brings a wealth of experience and a strong focus on greater operational rigour and governance.\u201d<\/p>\n\n\n\n

Blue Label investment commentary<\/strong><\/h2>\n\n\n\n
\"\"<\/a>
Blue Label co-CEOs Mark and Brett Levy<\/figcaption><\/figure>\n\n\n\n

Blue Label Telecoms reported a decline in group revenue and gross profit over the last financial year. Group revenue declined by R4.3 billion (23%) to R14.6 billion.<\/p>\n\n\n\n

Gross profit decreased by R188 million from R3.483 billion to R3.295 billion. An increase in the gross profit margin mitigated the decline.<\/p>\n\n\n\n

Earnings before interest, taxes, depreciation, and amortisation (EBITDA) declined by R258 million from R1.463 billion to R1.205 billion.<\/p>\n\n\n\n

Despite the downward trend over the last financial year, many investors are upbeat about Cell C\u2019s prospects under Mendes.<\/p>\n\n\n\n

The Blue Label share price increased by 91% over the last year, which shows the positive momentum behind the company from investors.<\/p>\n\n\n\n

However, not everyone is upbeat about Blue Label\u2019s prospects. Shane Watkins from All Weather Capital warned that investors may face nasty surprises.<\/p>\n\n\n\n

He told Business Day TV<\/a> Blue Label\u2019s core operations, selling vouchers and prepaid products, is a quality business.<\/p>\n\n\n\n

However, its majority stake in Cell C carries risk. \u201cA fourth operator in a country is never going to make money,\u201d he said.<\/p>\n\n\n\n

The biggest problem is governance. \u201cThere have been allegations linked to related party transactions between the management and Cell C,\u201d Watkins said.<\/p>\n\n\n\n

\u201cThe risk you take by investing in Blue Label Telecoms is corporate governance risk instead of operational risk.\u201d<\/p>\n\n\n\n

Another prominent analyst, who asked to remain anonymous, said they have also flagged corporate governance and accounting issues at Blue Label.<\/p>\n\n\n\n

He told BusinessTech that they would have shorted Blue Label if it were not for the unpredictable share price moves.<\/p>\n\n\n\n

Highly complicated finances<\/strong><\/h2>\n\n\n\n
\"\"<\/a><\/figure>\n\n\n\n

Blue Label\u2019s financial statements and reports are notoriously complicated, convoluted, and difficult to understand.<\/p>\n\n\n\n

After the Cell C acquisition, matters became worse. Blue Label created various special purpose vehicles (SPVs) with different functions.<\/p>\n\n\n\n

The main aim of the numerous SPVs is to reduce Cell C\u2019s credit risk, increase its liquidity, and restructure its financing. <\/p>\n\n\n\n

The sheer vastness and complexity of these SPVs make following Cell C and Blue Label\u2019s performance extremely difficult.<\/p>\n\n\n\n

Sasfin Securities\u2019 David Shapiro also previously explained<\/a> that the Blue Label results are very difficult to understand.<\/p>\n\n\n\n

\u201cThe structure of the loans is difficult to understand. To get the large amount of cash for Cell C, they had to do all kinds of financial engineering,\u201d he said.<\/p>\n\n\n\n

Shapiro said he did not want to be negative in any way, but it is very difficult for any person to grasp what is really going on.<\/p>\n\n\n\n

Wayne McCurrie, formerly from FNB Wealth and Investments, also said it is difficult to understand Blue Label\u2019s results, even for financial professionals.<\/p>\n\n\n\n

He joked that it would take a chartered accountant two years to understand the loans, special purpose vehicles, and guarantees related to Cell C.<\/p>\n\n\n\n

Blue Label Telecoms responds<\/h2>\n\n\n\n
\"\"<\/a><\/figure>\n\n\n\n

Blue Label Telecoms responded, saying all transactions between related parties are conducted following stringent corporate governance processes.<\/p>\n\n\n\n

\u201cWe adhere to rigorous protocols that ensure transparency and accountability,\u201d the company told BusinessTech.<\/p>\n\n\n\n

Additionally, established distribution agreements govern the commercial arrangements between Cell C and the Blue Label Group.<\/p>\n\n\n\n

These established distribution agreements further reinforce Blue Label\u2019s commitment to ethical business practices, it said.<\/p>\n\n\n\n

\u201cAt the same time, we understand that clarity and transparency of financial information are crucial for our stakeholders,\u201d it said.<\/p>\n\n\n\n

Blue Label said that it endeavours at all times to simplify the information to investors where possible.<\/p>\n\n\n\n

It added that the complexity of its financial reporting arises from the intricate nature of the commercial transactions associated with the Cell C recapitalisation transaction.<\/p>\n\n\n\n

\u201cWe recognise that these transactions can be challenging to understand, which is why we have made concerted efforts to explain them in a simplified manner,\u201d it said.<\/p>\n\n\n\n

It said its goal is to provide stakeholders with clarity and transparency while complying with IFRS accounting standards.<\/p>\n\n\n\n

\u201cWe have taken steps to simplify our financial reporting for the six-month period ended 30 November 2024, scheduled for release on Thursday 20 February,\u201d it said.<\/p>\n\n\n\n

\u201cWe are committed to maintaining high standards of corporate governance and financial integrity.\u201d<\/p>\n\n\n\n

\u201cWe will engage directly with All Weather Capital during our post-results investor roadshow, which will hopefully provide the opportunity to offer further clarity.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

A prominent analyst warned that investors should be concerned about corporate governance issues at one of South Africa\u2019s top companies.<\/p>\n","protected":false},"author":10,"featured_media":811935,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[21],"tags":[19503,1382,1654,21736,1507,21735],"class_list":["post-811931","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-telecommunications","tag-all-weather-capital","tag-blue-label-telecoms","tag-brett-levy","tag-jorge-mendes","tag-mark-levy","tag-shane-watkins"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/811931","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=811931"}],"version-history":[{"count":6,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/811931\/revisions"}],"predecessor-version":[{"id":812302,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/811931\/revisions\/812302"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/811935"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=811931"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=811931"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=811931"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}