Things keep getting worse for Blue Label Telecoms, which is a parent company of struggling mobile phone operator Cell C.
The JSE-listed telecoms firms shares traded as low as R6.58 on September 5 and today at 12:30 it had slightly fell by 0.61% at R6.54.
Blue Label own the 45% stake in Cell C through its subsidiary The Prepaid Company. It is the leading distributor of prepaid airtime in South Africa. It has in excess of 150 000 points of sale.
The company’s core business has been as a ‘wholesaler of airtime’; buying airtime in bulk from the mobile networks at a discount, and reselling this to spaza shops, retailers and banks.
The Blue Label Telecoms share price is back at pre-Cell C’s recapitalisation levels.
In October 2016, the company published the Cell C recapitalisation circular and since that announcement the stock has been battered.
The stock continues its downward spiral, taking this year’s losses to date to 56% and down 63.5% in the past year. The share has dropped 10% in the past 10 days and lost 47% in the past 90 days.
Although Blue Label Telecoms’ overall business is strong, uncertainty surrounding Cell C seems to be impacting its stock price.
Investor confidence is not showing signs of recovery, but the company executives insist the mobile phone operator is positioned for growth.
But Cell C, which is struggling to compete, has a mountain of debt to clear.
Cell C’s total liabilities have increased by 5% to R19 billion in June 2018 versus R18 billion in the same period last year.
Its long-term debt has been reduced to R6.4 billion from R17.9 billion, while short-term debt has more than doubled to R1.5 billion versus R417 million.
Recently, Blue Label Telecoms announced that Cell C procured R1.4 billion of funding from a consortium of financial institutions for a tenure of 12 months, secured by airtime to the value of R1.75 billion.
The amount may not be enough to enable Cell C to compete with cash flush rivals, Vodacom, MTN and Telkom.
Furthermore, last month Cell C reported a net loss of R645 million in the six months to end-June – an improvement of 33% compared to the R968 million net loss in 2017.
The doubt among analysts and shareholders that Cell C may be turnaround is sending the stock down and is turning Blue Label Telecoms into an underperforming telecoms stock.
Blue Label Telecom’s rival MTN share price has also tanked in the past few days.
But MTN’s woes are to be blamed to the Nigerian authorities that keeps on imposing fines on Africa’s biggest mobile phone operator.
That said, what has happened since the pre-Cell C’s recapitalisation then that has led to the Blue Label Telecom’s share price more than halving?
However, Tantalum Capital, a local boutique asset manager is upbeat about Blue Label Telecoms.
“With improving disclosure of Cell C’s financial statements and further evidence of operational traction, we believe [Blue Label Telecom’s shares] will rerate handsomely in time,” said in a recently published research report.
However, time will tell whether the stock will start to tick up.
Keep an eye on Cell C for any clues.