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Blue Label Telecoms

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Do any of you own Blue Label shares? 

What do you guys think about the future of Airtime?


I owned some, but I then sold them for a profit, but back then I bought Blue Label purely based on a recommendation from a friend, but this time round I am looking more and more into the tech space in South Africa and thought since we have threat for Adapt IT, I might as well add one for Blue label.

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Been reading alot of articles about them recently, some showing that they are very under valued at the moment, and should be around 25 bucks a share. Also banking on their lucrative cell c deal to start pulling in some good revenue. I dont have anything in telecommunications at the moment so its also to diversify.

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I was considering Huge group as well but they are not very liquid shares so that concerns me becuase it means I have to commit for the very LT to hopefully be rewarded.

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I like Blue Label, they are in the lower end of the market. They have businesses in Mexico and India not yet profitable but could make a fortune there. The CellC deal could make or break them, and the "black" ownership requirement could be problematic. I have some and prefer them to Vodacom. MTN has too many problems. I have 4.5% of my portfolio in them so i am prepared for an interesting ride.

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Not the most trustworthy management around, they seem to be involved everywhere the Guptas are.


Guess they're a good buy because of it.

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Blue Label powers higher on robust results


Blue Label Telecoms’ share price shot up more than 10% in Thursday morning trading on the JSE after reporting a strong set of interim results for the six months ended 30 November 2017.


Adjusted core headline earnings per share — stripping out the effects of the Cell C and 3G Mobile acquisitions to provide a “like-for-like” comparison — shot up by 21% year on year to 75.59c.


With the two acquisitions factored into the numbers, core Heps rose by 108% to 168.42c on revenue of R13.5 billion.


Core headline earnings were R1.4 billion. Earnings included the group’s share of profits in Cell C of R928 million, of which R865 million was from the recognition of a deferred tax asset. Cell C has as much as another R3 billion it can recognize, which the mobile operator intends to apply in the coming years. Blue Label’s share of profits from 3G Mobile amounted to R36 million.


Blue Label co-CEO Brett Levy said the company’s acquisition of a 45% stake in Cell C in a deal worth R5.5 billion will soon begin to bear significant fruit for the group. “It will be a very strong third network that has a lot to offer consumers. Results for 2017 were exceptional, but a lot of it was to do with the recapitalisation.”


Levy hinted that he expects Cell C’s 2018 financial performance to be robust.


“Our investment in Cell C provides a compelling value proposition to the group, to Cell C and its customers through vertical integration that will afford both companies the opportunity to realise synergies in product distribution,” Blue Label said in a statement. “Cell C now has a sustainable capital structure to deliver on its strategic objectives.”


Levy’s co-CEO (and brother), Mark Levy, said the Cell C and 3G Mobile deals have created a platform for further strong growth in the years to come.


A big focus for 2018 is on expanding Blue Label’s distribution footprint and product offerings, particularly in the informal market, the group said. This will be done by providing many more point-of-sale devices to independent traders.




3G Mobile is expected to benefit from growing demand for low-cost and refurbished smartphones. Through subsidiary Comm Equipment Company, it plans to offer financing to consumers on a range of products beyond cellphones, including satellite decoders.


In prepaid electricity, where growth continues to be robust — albeit on thin margins — Blue Label intends to work with key municipalities to offer a “full turnkey revenue management system, credit control services, audits, meter replacements and new installations”.


Its Mexican operation, meanwhile, is soon expected to contribute to group profits for the first time thanks to an improvement in revenue and sustained improved gross profit margins and compounding annuity revenue generated from starter packs, it said.


Blue Label generated R3.1 billion in cash from operating activities in the interim period. It does not, however, declare an interim dividend.


The Levy brothers together directly hold 13.7% of Blue Label’s equity. Its biggest shareholder is Allan Gray, which holds a 15.9% stake on behalf of its clients.  — © 2018 NewsCentral Media

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Seems blue label is a good buy to get access to the telecom sector as well as insurance (remember I read somewhere they are eyeing that space).

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I wonder if blue is fixing the reseller price for Cell C now that they own it.


In other words do they give 1 price for airtime vendors (blue label competitors) and another price for Blue Label (cheaper).


Does it show in Blue Label's financials what they pay for Cell C airtime (the profit margins)


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Valuation of Blue Label Telecoms


Blue Label Telecoms (BLU) released a complicated set of H1:18 results. For the Group’s full presentation, click through to here.


While I’ve heard arguments about how obfuscated and complicated these result’s accounting is, this argument reflects more on how these critics lack a basic grasp of IFRS rules than anything else. IFRS has rules and you account for things like JV’s, associates, and deferred tax assets in only predefined ways. Complicated results are not the same as bad or questionable results.


Swiftly moving on from that rant, let me run through some intuitive numbers with you to arrive at a matchbox valuation for Blue Label Telecoms.


South African Distribution:


Blue Label Telecoms’ domestic distribution segment is the core business from which management have leveraged operations, cash flows and their route-to-market. This business predominantly sells prepaid airtime, electricity and a range of other electronic vouchers across a vast and deep (mostly rural, peri-urban and white label) network in South Africa.


Normalizing IFRS technicalities (like agent vs principal sales for various tokens, i.e. once again “IFRS rules” and not “Blue Label Telecoms discretion”), the segment’s sales rose +10% y/y.


During H1:18, management drew deep into this segment’s working capital to maximize free cash flow and help pay for both Cell C and 3G that were acquired during this period. One of the things given away were various discounts at various levels, thus EBITDA and profits were pretty much flat in this segment despite revenue growth. This is likely a one-time event, and from next financial year, I would expect this segment to continue at its normal growth trajectory of c.+5% to +15% y/y growth.


More interestingly, though, this segment generated an EBITDA of c.R1bn in H1:18, or R1.4bn for the full FY 17 (about R1.4bn on a 12m rolling too). Let’s use the slightly older FY 17 and place it on a reasonable 10.0x multiple (overseas virtual distribution businesses like this go on multiples that range from c.10x to c.20x; see here, here, here, here and here) to value the enterprise. Now, backing out net debt of pretty much nil at Group-level, you arrive at an equity fair value for this business of c.R14bn.


Funny, though, how Blue Label Telecoms’ market cap is only R12bn…?


Why? Maybe the rest of the Group is loss-making with massive overheads, terrible prospects and it is worth giving a negative value to?


I do not believe so, but allow me to illustrate why.


Cell C:


Blue Label Telecoms paid R5.5bn for its 45%-stake in Cell C. Assuming this is fair value and the rest of the Group is worth zero, then BLU’s share price is currently at a c.60% discount to the R19.5bn (=R14bn + R5.5bn) market cap that it should be trading at.


But, was a 45%-stake in Cell C actually worth R5.5bn? How does Cell C’s fair value stand by itself?


I previously valued Blue Label Telecoms’ stake in Cell C as worth at least R8.5bn. Seeing Cell C’s recent results (ignore the deferred tax asset, though it really is an asset), nothing persuades me that my previous view was flawed.


Cell C is at break-even, its balance sheet is recapitalised and its subscriber, sales and cash flow numbers are all growing nicely. Even more interestingly, it is now publicly asserting that it intends to list in the next couple of years (which would be a great value-unlocking moment for Blue Label Telecoms).


All of these are positives.


A quick matchbox calculation shows that Vodacom’s market cap values each of its subscribers as worth c.R4000 per subscriber (= R281bn market cap divided by 71m subscribers).


(MTN is both mostly ex-South Africa telcos and has its market value being distorted by fines, currencies and management challenges, hence I do not believe that it makes for a good comparison for Cell C. Thus, let’s stick with Vodacom as a clean, South African relative valuation base here.)


Hence, assuming that Cell C is worth only a quarter of what Vodacom is worth per subscriber (despite Cell C being third in the telcos market, not fourth) still implies that Cell C is worth R16.3bn (= 16.3m subscribers multiplied by R1000 per subscriber). This means that Blue Label Telecom’s 45%-stake would be worth R7.3bn.


Hence, even though I think 45% of Cell C could be worth materially more than R5.5bn, I will assume that it is only worth what was paid for it.


Rest of the Group:


The rest of Blue Label Telecoms group consists of a technology component, Indian and Mexican distribution businesses, media and cellular-related services and mobile handset financing.


Collectively, this portion of the business made a loss of R43m (sum of core net profits from each of these segments) in H1:18. Annualize that with rounding to costing the Group c.R100m per annum to keep going. Note, though, that this includes the Group overheads that run everything. Hence, this builds up a “Group overhead discount” for our coming Sum-of-the-Parts (SOTP).


Let’s give this cluster a 10.0x Price Earnings, in which case this cluster has a negative R1bn cost attached to it.


Given that Mexico is soon to reach break-even and thereafter will be contributing profits to the Group and that 3G Mobile (the handset financier) is making c.R60m to R70m profits per year, I think that forward earnings for this cluster is likely much more attractive than it has historically been.


Still, let’s be conservative and assume that this segment is worth negative R1bn.




If you take the above fair values and add them together, you arrive at a fair value for Blue Label Telecoms of R18.5bn (= R14bn + R5.5bn – R1bn), or c.1950cps. This includes the dilution from Cell C’s capital raise and the recent bookbuild. This 1950cps implied fair value is materially +c.50% higher than the current BLU share price of sub-1300cps, and it does not even take into account any major growth in most of the underlyings nor any synergies being extracted between the Group and Cell C.


In other words, what is Blue Label Telcoms fair value? To be exact would be difficult, but the above rough workings intuitively point to the stock’s fair value being quite a lot higher than its share price.


Hence, I continue to like Blue Label Telecoms as both a business and as a very investable ‘SA Inc’ share at these prices.


Source: Smallcaps.co.za

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I'm not sure (I don't own Blu yet), but The LM Nestadt Trust has bought almost R1 million worth of blue label shares this month, something is definitely cooking there. 



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I'm thinking they are either after Cell C's spectrum (so might run it into the ground to buy it out completely) or they will poor into Cell C with the aim to list the company on the JSE, but again by that time have enough rope within Cell C to practically run it behind the scenes. 

Just my feeling.

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