Cell C and Blue Label: Is it a case of waving or drowning?

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Cell C and Blue Label: Is it a case of waving or drowning?

Investors not convinced by management’s assurances about health of debt-heavy associate company Cell C

Nick Hedley


Blue Label Telecom’s shares have dipped below R5 for the first time in seven years. Despite management’s assertions in August that the market was unfairly punishing the company, things seem to have gone from bad to worse.
In late August, Blue Label joint CEO Brett Levy said 45%-held associate company Cell C was doing better than expected on all metrics, including debt. The mobile operator’s debt “is less than what we had budgeted”, Levy said. “The market is impatient or the market doesn’t understand it [Cell C],” he said, referring to Blue Label’s decline on the JSE.
But investors are not convinced. Since August 20, Blue Label’s shares slipped from R8.37 to R5.05 on Thursday afternoon. At the end of August last year, the group’s stock was at R18.49.
To many in the market, the 2017 Cell C recapitalisation deal could prove to be a poisoned chalice for Blue Label. More than anything else, investors are concerned about the operator’s debt levels. In the six months to June, Cell C’s net debt grew to R7.3bn, from about R6bn in August 2017, as the operator started building its network again.
But Levy says he is not concerned. He said in August that while Blue Label originally expected Cell C would need another R4bn until the end of 2019, “what only needs to be raised in Cell C until it turns cash positive and needs no more money is R2.8bn”.
Time will tell whether the market is indeed being overly pessimistic, or whether Blue Label has overplayed its hand.

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