Blue Label Telecoms bought a 45 percent stake in Cell C for R5.5 billion in 2017. Photo: Simphiwe Mbokazi African News Agency (ANA)

DURBAN – Blue Label Telecoms on Thursday flagged that its earnings for the year to May could plunge as much as 20 percent after impairing its exposure to Cell C to zero.

The group, the largest financier of the country’s third-largest mobile operator at 45 percent, said it expected to report a loss of between 725.81c and 729.81c a share, compared to earnings per share of 116.12c reported last year. 

Blue Label Telecoms bought a 45 percent stake in Cell C for R5.5 billion in 2017. It said Cell C trading losses and related impairments contributed 671.33c in the group’s loss a share. The group has struggled to lift Cell C out of its struggles to compete with Vodacom and MTN.

On Thursday Cell C’s second-biggest shareholder, Net1 UEPS Technologies, said it had also written down to zero the value of its stake in the company

Net1 chief executive Herman Kotze said the decision to impair the value of their investments would have no impact on Cell C’s operations or the proposed transactions it is pursuing.

“We believe that Cell C’s long-term prospects will significantly improve once it has been recapitalised,” he said.

Blue Label Telecoms said it delayed the publication of its 2019 financial statements to evaluate its investment in Cell C. The group is now expected to release the results next Thursday. 

It said it expected a headline loss of between 310.49c and 314.49c compared to headline earnings per share of 115.42c last year.  

Blue Label said that it also had to contend with a fair value downward adjustment of Glocell Distribution which contributed a loss a share of 91.75c and trading losses and related impairments at its Indian operations contributed 43.60c. Other material impairments amounted to 16.05c.                                      

“The group expects core headline earnings from the balance of the entities within the Blue Label group to be between R885 million and R922m compared to R716m reported last year,” the group said. 

Nesan Nair, a senior portfolio manager at Sasfin Securities, said Cell C needed further recapitalisation to deal with the debt burden in the short term. 

“In the long term, one has to take a hard look at the viability of the business, which has never really made money as it is the smallest player in the industry,” Nair said.

Nair said Cell C had to deal with fierce competition from larger industry players.  

“Cell C is also being throttled by tariff pricing by Icasa, both on voice and data (and perhaps rightly so if international norms are used) and with continued delays from government in the rollout of radio spectrum, which they probably won’t be able to afford when the tenders do go out,” Nair said.

Blue Label Telecoms rose 3.77 percent on the JSE yesterday to close at R2.75.