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Blue Label Telecoms half year results

Half year results for the year ended 30 November 2018. "A tough period dragged down by Cell C’s poor performance”.

Blue Label Telecoms Limited (Blue Label) this morning released their unaudited results for the half year ended 30 November 2018. The technology company, which owns a 45% of mobile operator Cell C, reported a net loss of R116.5 million for the period. Blue label acquired a 45% shareholding in Cell C in August 2017 and has subsequently included Cell C’s financial performance as part of its results. The share price opened at R6.19 on the JSE this morning phoneand has plummeted down 12.58% to R5.37 as of 11:30 am.

Blue Label reported revenue of R12.3 billion compared to R13.6 billion in the comparative period in 2017. Cell C contributed negatively to the groups net loss by reporting a loss for of R634 million for the six months ended 30 November 2018. Blue Labels 45% share of this loss equated to R285 million, but according to its accounting policies, the net result was a negative contribution R128 million to Blue Labels core earnings.

Salient Features

  • Revenue decreased 9.56% from R13.6 billion to R12.3 billion
  • Net loss of R116.5 million compared to gains of R1.35 billion in the comparative period
  • Gross profits increased 15% to R1.31 billion
  • Gross profit margin increased from 8.37% to 10.63%
  • EBITDA Margin decreased from 5.64% to 3.08%
  • Core headline loss of 11.39 cents per share
  • EPS of negative 12.59 cents per share compared with a positive 167.61 cents per share in the comparative period.

Share of (losses)/profits from associates and joint ventures

  • Cell C: (R133 465 million) compared to R924 194 million in 2017
  • Blue Label Mexico: (R13 002 million) compared to (R10 511 million) in 2017
  • Other: R 8 429 million compared to R26 742 million in 2017

The results show that the group suffered from poor performance in its core underlying businesses. The major contributor being the groups 45% share of Cell C. For the 10 months ended May 2018, Cell C’s net profit amounted to R1.14 billion. This comprised trading losses of R782 million offset by the recognition of a deferred tax asset of R1.92 billion. Blue Label’s share of this net profit was R512 million. The Cell C acquisition back in August 2017 has proved to be a poor strategic acquisition as part of the group’s growth strategy. This coupled with poor performance from Blue Label Mexico has put the groups potential for future growth into question.

Analyst Recommendations

The consensus ratings from Bloomberg show 66.7% buys and 33.3% holds, with no sell ratings at all. The target prices range from ZAR 1500 cents to ZAR 1845 cents, compared to the current price as of 11:30 am of ZAR 537 cents. This represents potential returns ranging from 179% to 244% should the target prices be reached. The consensus remains bullish on Blue Label and recommends a buy at current levels.

Analysis provided by Tyron Searle, Trading Services, IG South Africa


This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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