JOHANNESBURG - Blue Label Telecoms’ joint chief executives hit out at the lukewarm market reception of its multibillion rand investment in Cell C as the group’s share price extended its freefall.
The group’s stock yesterday plunged 11.04 percent to R6.85, following a fall of 8 percent on Tuesday on the back of interim results published by Cell C.
The company’s stock has plummeted 48.53 percent in the past year to date. Joint chief executive Brett Levy said he struggled to understand why the market has been unkind to the company, especially its investment in Cell C.
“Every single line item that we did internally, whether it is budgeting or business planning in the first eight months of our investment in Cell C, has outperformed,” Levy said. “Where exactly is Cell C going wrong that has the markets so worked up? The punishment must fit the crime. We must be afforded the time to implement the growth strategy for Cell C.”
The company bought a 45 percent stake in Cell C a year ago in a deal worth R5.5 billion and plans to list the company by 2020. Cell C managed to cut its net loss by 33 percent from R968 million in the prior year to R645m in the six months ended June.
Asief Mohamed, chief investment officer at Aeon Investment Management, said the Cell C acquisition by Blue Label Telecoms might prove to be costly. “It is too early to gauge if Cell C will be able to generate profits before the intended listing.
The shareholders of Cell C will have to assess if the Cell C management is able to deliver returns well above cost of capital,” Mohamed said. Blue Label said it believed it paid a fair price for Cell C and that the investment would yield the desired results. The group said it aimed to transform Cell C into a content provider and make strides in the fledgling fibre-to-home industry.
Rebuttal Mark Levy, who is the group’s joint chief executive, also launched a scathing rebuttal of how investors had viewed the Cell C deal. He said the country’s investor community needed to be receptive to new ways of doing things and not be dismissive of new ideas.
“If companies like Whatsapp, Facebook and Twitter had to list in South Africa, they would never get off the ground, because we have no appreciation in our investor community for modern-age products,” Levy said.
“We have to evolve and stop stigmatising people and thinking that things have to be done the same way they have always been done.”
The group board opted to not pay dividends this year and instead will undertake a share buyback programme, following an acquisitive spree. Besides the Cell C deal, the company also acquired a 47.37 percent interest in 3G Mobile for R900m last year, while it also took a 60 percent stake in airtime advance provider Airvantage earlier this year.
The company paid a 40 cents per share dividend last year. The telecoms group increased its core headline earnings for the year ended May by 30 percent to R1.03 billion.