One of the shares that I have been watching quite closely is Blue Label Telecoms, the JSE-listed technology group which is down 25% year-to-date.
For the 6 months ended November 2017, Blue Label delivered R13.5bn in revenue and R778m in EBITDA. The below infographic details the operating divisions of the business reflecting the stake in CellC and 3G Mobile.
What’s to like about Blue Label?
The company trades on a [Bloomberg Estimates] forward price to earnings multiple of 4.2 times earnings offers a 3.2% dividend yield and a price to book value of 1.1 times earnings.
While not directly comparable, the likes of Vodacom (16 times earnings) and MTN (19 times earnings) are trading on far more demanding multiples.
The share price has been range-bound for the last couple of months as the market has digested the 3G Mobile / CellC transactions but the company had no problem raising R900m through an accelerated book-build in February 2018. The book-build shares were priced at R12.50/share and the company reported that the book-build was over-subscribed.
If one goes further back to the two major acquisitions (Cell C for R5.5bn and 3G Mobile for R1.9bn), the company issued shares at R15/share (183m for Cell C transaction and 16.66m for 3G Mobile).
Since 28 February 2018, there have been 3 directors dealings reported. Interestingly all 3 are in the form of Contracts For Difference (CFDs) with non-executive director Kevin Ellerine buying:
- 9m worth of CFDs at R13 on 28 February 2018
- 1m on 1 March 2018 in two tranches at R12.75 and R12.90
- 68m on 8 March 2018 at R12.19
The share closed on Friday at R12.26.
What are the risks to Blue Label?
The primary risk that management has identified is in the bedding down of the Cell C transaction which makes up just under 50% of the group now. The introduction of new shares has created a bit of an overhang in the market, possibly weighing on the share price.
The market will be looking for an update on these transactions to identify whether management is making progress at unlocking synergies. The market will also want to watch to see whether Vodacom and MTN (existing partners for Blue Label) respond negatively to the strategic shareholding in Cell C.
Sanlam Private Wealth recently released a report on the stock setting a 12-month target of R19.84 (Using a Sum-Of-The-Parts valuation) where they point out that the accounting is “messy” and the market will be looking for more transparent reporting as the acquisitions are bedded down.
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