Paul Theron, the founder and CEO of asset management firm Vestact, says Blue Label Telecoms (Blue Label) “were idiots for getting mixed up with Cell C”.
Theron, a respected analyst and co-host of the Hot Stoxx show on CNBC Africa, is well known for his outspoken views.
In 2013, Theron predicted that “Cell C will be dead within six months”, saying the company has decimated its own business case with its aggressive pricing strategy.
“Cell C is under such pressure that they basically decimated their own business chasing market share,” said Theron.
While his 2013 prediction was premature, Cell C was indeed struggling, and five years later the mobile operator is once again under severe financial pressure.
Cell C was downgraded to D (Default) by S&P Global in August, with the agency stating there is “an increased likelihood that Cell C will be unable to repay all or substantially all of the obligations”.
Cell C dragging Blue Label down
Blue Label’s decision to buy a 45% stake in Cell C for R5.5 billion was punished by the market, with its share price plummeting from around R21.00 per share to around R2.70 per share.
This share price slump shaved billions off the value of Blue Label Telecoms, and even its co-CEOs punting a successful turnaround of Cell C did not help.
Cell C’s financial problems have reached a level where the operator was forced to delay its debt payments and hire consultants to probe its business practices.
Theron told MyBroadband that Cell C has always been useless, according to their customers. “Their prices were cheap, but their coverage was nasty,” Theron said.
“Blue Label were idiots for getting mixed up with Cell C. I mean, really? It’s like they grabbed an anchor and jumped off a pier,” Theron said.
Blue Label delays financial results
On 19 August, Blue Label Telecoms warned shareholders that it expects headline earnings for the year ended May 2019 to be down by at least 20% from the prior year.
The biggest shock, however, was when it delayed its financial results because of issues related to Cell C.
Blue Label said that its audit for the year ended May 2019 was ‘substantially complete’, but that it is currently in the process of determining the valuation of its investment in Cell C.
This valuation, the company said, “incorporates the effects of the transactions that are currently in progress” which will have “an impact on the carrying value of the investment”.
This delay, which means Blue Label’s results will only be available four months after its year-end, shook investors, and the company’s share price plummeted to an all-time low.
Decision slated by David Shapiro
Speaking to Biznews, Sasfin Securities deputy chairman David Shapiro said he is surprised that the Stock Exchange (JSE) didn’t insist the company publish their accounts.
“I don’t think the deal has been signed, but it’s obviously pointing to very difficult conditions when they took over Cell C,” he said.
He added that the delayed results point to a situation which he thinks “is going to be very difficult or costly for them to turn around”.
Shapiro told ITWeb that Blue Label must tell the market what is going on, as they own 45% of the company and they control the board.
“In company law, if you control the board, it means that company is a subsidiary of Blue Label. They must tell us what’s happening now, not wait for a month,” he said.
Some good news is that Cell C CEO Douglas Craigie Stevenson recently unveiled a turnaround plan to save the company.
This plan includes a recapitalisation programme aimed at extracting greater value from its roaming agreement and optimising its network revenue and usage.
In response to questions from MyBroadband about its investment in Cell C, Blue Label said its turnaround plan is on track.
“As you are aware, we are busy with transactions to restructure Cell C’s balance sheet and re-gear the company for a new operating model,” Blue Label head of investor and media relations Nicola White said.
“The transactions are progressing well, and we look forward to updating the market,” White added.