The group said yesterday that the acquisition of Cell C provided a compelling value proposition to the group, to Cell C and its customers through vertical integration that would afford both companies the opportunity to realise synergies in product distribution.
It said Cell C now had a sustainable capital structure to deliver on their strategic objectives.
Blue Label recently paid R5.5 billion for a 45% stake in Cell C. However, the group is facing challenges as Cell C’s minority shareholder and broad-based black economic empowerment consortium, CellSAf, wants to block the deal.
CellSAf claimed the proposed restructuring was non-compliant and faced a number of legal and regulatory hurdles.
“The recently-announced restructuring of Cell C, involving Net 1 and Blue Label Telecoms, is far from a 'done deal'. The restructuring amounts to a blatant attempt at corporate capture, and is likely to collapse under regulatory scrutiny,” CellSAf said. However, it is business as usual at Blue Label as the team continues to integrate its business.
The group also announced in June a 100% of 3G Mobile for R1.9bn, being another important step by the group as 3G Mobile was one of Africa’s largest distributors and financiers of mobile devices and handsets to major retailers and cellular network providers.
“3G Mobile provides the ideal platform to combine Blue Label’s low cost and certified pre owned mobile handset divisions into a consolidated group. The acquisition thereof is both earnings accretive and provides a solid foundation for distribution into the burgeoning low cost smartphone market,” the group said.
In the results to end May, Blue Label reported flat revenue of R26bn, while after tax profit grew 12% to R821m. Core headline earnings per share was up 17% to 120.09 cents, while earnings before interest, tax, depreciation and amortisation increased by 7% to R1.3bn. The group declared an 11% increase in dividends to 40c a share.
Peter Takaendesa, a portfolio manager at Mergence Investment Managers, said Blue Label’s earnings were marginally below sell-side consensus expectations, but still a strong result in a weaker growth environment.
“However, this earnings growth rate was boosted by a non-operational net fair value gain of R35m on their Indian business. The underlying operational performance is therefore 12% growth in core headline earnings per share to 115c.” He said the share price appeared to be driven more by expected benefits from the recently concluded Cell C and 3G Mobile acquisitions.
“My view is that these acquisitions will clearly help earnings growth in the year ahead, but also come with significant risks related to capex risk at Cell C mid-longer term and potential to sour the existing distribution relationships with Vodacom and MTN,” Takaendesa said.
Blue Label shares rose 2.08% to close at R17.20 on the JSE yesterday.