Caution from well-known fund manager about Cell C
FNB Wealth investment research head Chantal Marx has warned that there are risks for investors hoping to gain from Blue Label Telecoms considering listing Cell C on the Johannesburg Stock Exchange.
Blue Label’s share price has grown significantly in the past two years, rallying over 600% from lows of R2.35 in September 2023 to a high of R17.03 on 31 July 2025.
Speaking to Business Day TV, Marx cautioned that bringing Cell C to market still involved a lot of execution risk. “They’ll want that business to at least show a small profit before actually listing it,” she said.
Marx said there was a risk that investors could be stuck in Blue Label for a year or more, as there was a possibility that Cell C would not be ready to list when they would have ideally liked to.
Blue Label recently announced that it was exploring various strategic options to unlock shareholder value, including listing Cell C separately and increasing transparency with investors.
Exploring different capital sources could reduce or potentially eliminate Cell C’s crippling debt burden, which negatively impacts its balance sheet.
Cell C has also not been transparent about its finances in the past few years, with inconsistent reporting and a lack of comparable data.
Being listed on the JSE will compel Cell C to be more transparent and provide investors with reliable and regular financial reports.
Blue Label made the fateful decision to buy 45% of Cell C for R5.5 billion in August 2017. Within the next three years, Blue Label’s share price plummeted by 90% to around R1.75 per share.
All investors could focus on was Cell C, and it did not look good. Cell C was technically insolvent and was bleeding money.
On 31 May 2019, Blue Label impaired its investment in Cell C to nil. However, this was not the end of Blue Label’s Cell C headache.
Cell C recapitalised — twice
Blue Label could not let Cell C perish and wash its hands of its poor decision, as it made up around 25% of Blue Label’s total profits.
Therefore, it was in Blue Label’s interest to keep Cell C alive and make the mobile operator sustainable.
In September 2022, Blue Label stated that Cell C had implemented a turnaround strategy to enhance operational efficiencies and reduce operational expenditure.
It included recapitalising Cell C a second time, which included a R1.46 billion loan to Cell C, used to repay the mobile operators’ lenders. The lenders received only 20% of their claimed loans.
Blue Label also replaced Cell C’s management team with former Vodacom executive Jorge Mendes, who took the reins as chief executive.
Mendes slashed the mobile operator’s organisational structure, with full-time employee numbers below 900.
When Mendes took over, Cell C had embraced a strategy to become a capital-light business that outsourced its radio network infrastructure, the capital-intensive part of a telecommunications company, to Vodacom and MTN.
Mendes followed through on this plan, saying this strategy will help Cell C achieve better margins than its larger competitors, which must spend billions to maintain and improve their infrastructure.
Cell C focuses strongly on its Mobile Virtual Network Operator (MVNO) offering, which has shown solid growth through strong partnerships.
Mendes said the MVNO business operates with a similar profit margin and, in some cases, greater than its direct-to-consumer business.
He believes it has an edge over some of its larger competitors, which are unwilling to squeeze their margins to engage with specific market segments through MVNO partnerships.
Some of Cell C’s largest MVNO partners include FNB Connect, Capitec Connect, and the more recently launched Old Mutual Connect.
Mendes explained that, in essence, this will result in Cell C becoming an aggregation player aggregating mobile traffic through various MVNOs.
Cell C aims to be agnostic when it comes to network providers, offering its clients the “best of both worlds” by providing connectivity on both MTN and Vodacom.
The market loves what it is hearing about Cell C
While Blue Label Telecoms’ share price performed well, the company’s financial performance has been erratic.
Blue Label’s revenue has been declining since 2017. It declined from approximately R27 billion in 2017 to just over R14 billion in 2024.
Blue Label’s net income has also deteriorated since 2017, falling from R1.6 billion to its current level of R640 million.
Although the group’s net income fell in absolute terms, it has maintained its net profit margin between 4% and 5%.
From a purely financial perspective, the share price performance is difficult to justify. However, the positive changes at Cell C have excited the market.
This includes Mendes taking over as CEO on 1 July 2023, and Cell C’s strategy to become capital-light with a leaner workforce.
Cell C’s network strategy has also proven successful. MyBroadband Insights’ quarterly network quality report found that Cell C overtook Vodacom to become South Africa’s second-best mobile operator.
It maintained its position in the second quarter, but Vodacom achieved faster average download speeds nationally. Vodacom remains South Africa’s best and most reliable 5G network, whereas Cell C has yet to launch 5G services.
Although Blue Label’s finances did not perform particularly well, there is confidence in Cell C’s turnaround, which has bolstered the Blue Label share price.
Grant Nader from Benguela Global Fund Managers said that Blue Label and Cell C had done a great job cleaning the operator’s balance sheet.
“Cell C has been loss-making almost since its inception. It’s now break-even from what I understand,” Nader said.
He said that the thinking around a potential listing of Cell C has driven the rally in Blue Label’s share price and unlocked real value for shareholders.
Blue Label share price
Blue Label Telecoms Finances
The figures below are reported annually, with data points recorded every six months.
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