South African tech company goes from zero to hero

Blue Label Telecoms’ share price increased by over 250% in under two years as investors gained confidence in its ability to turn around Cell C.

Blue Label Telecoms has its roots in a simple electronics business that Brett and Mark Levy started in high school.

In high school, they started a business selling televisions, hi-fi sets, car radios, and other electronics from the boot of their cars.

This venture soon expanded into insurance replacements and consumer electronics distribution, laying the foundation for Blue Label Telecoms.

Leveraging their growing network, they positioned themselves as major players in prepaid services.

A breakthrough came in 2001 when Telkom awarded Blue Label a national contract to distribute prepaid airtime for fixed-line services.

This helped them build an extensive distribution network, which soon attracted Vodacom, MTN, and Cell C, as South Africa’s cellular market took off.

Their industry innovation was replacing physical scratch cards with electronic distribution, and Blue Label was the big winner.

Blue Label expanded into prepaid electricity, water vouchers, starter packs, and ticketing, cementing its national presence.

The company’s success drew major investors from inside and outside South Africa, including Microsoft, which took a minority stake when Blue Label was listed on the JSE in 2007.

The company gained popularity among many investors, and by September 2016, its share price had increased by around 150%.

However, in August 2017, Blue Label made the fateful decision to buy 45% of Cell C for R5.5 billion. The share price soon started to decline.

Within the next three years, Blue Label’s share price plummeted by 90% to around R1.75 per share, as Cell C’s performance continued to deteriorate.

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.

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.

It was, therefore, in Blue Label’s interest to keep Cell C alive and make the mobile operator sustainable.

Big Cell C turnaround

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, 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 taking the reins as chief executive.

Mendes slashed the mobile operator’s organisational structure, with full-time employee numbers below 900.

Cell C became a capital-light business that outsourced its radio network infrastructure, the capital-intensive part of a telecommunications company, to Vodacom and MTN.

This strategy, Mendes said, 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 showed strong 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 not willing 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.

Blue Label’s plan with Cell C

Blue Label recently announced that it was exploring various strategic options to unlock shareholder value.

These strategic options include listing Cell C separately on the JSE 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, providing investors with reliable and regular financial reports.

Sharenet portfolio manager Dylan Bradfield, a long-time supporter of the Blue Label investment case, welcomed these developments and believes there is more upside.

He described the latest Cell C announcement as great news for shareholders, as it establishes a clear path to unlock significant value.

SaltLight Capital Management portfolio manager David Eborall agreed, saying Blue Label’s restructuring is very sensible.

He explained that Blue Label’s core operation is a capital-light distribution business and should not be valued like a telecommunications company.

“Cell C, in time, should trade at a higher multiple than MTN and Vodacom because its capital requirements are significantly lower,” he said.

He added that it is a good idea to sell Blue Label’s Comm Equipment Company (CEC) to Cell C because most of Blue Label’s external debt is now warehouse funding for the handset book.

He also liked swapping the Blue Label airtime inventory of around R4 billion to equity, which he described as a considerable drag on the company’s free cash flow generation.

The market loves what it is hearing about Cell C

While the Blue Label Telecoms share price performed well, the company’s financial performance has been erratic.

Since 2017, Blue Label has experienced a downward trend in its revenue, declining 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, several positive changes at Cell C have excited the market.

In 2023, Cell C’s former CEO, Douglas Craigie Stevenson, resigned from his position and was replaced by Mendes.

The market responded positively to this change, with Blue Label’s price increasing by 17% from then until the end of 2023.

In early 2025, Cell C obtained permission from the Independent Communications Authority of South Africa (ICASA) to transfer control of its telecoms licenses to The Prepaid Company.

This move gave Blue Label more direct influence in the management and operations of Cell C, which was well received by the market.

Blue Label’s share price increased by 21% in the month that followed, and likely bolstered investor confidence in Cell C’s future.

Cell C’s strategy to become capital-light with a leaner workforce further bolstered the market’s trust in the operator’s turnaround.

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.

The share price increased from R2.80 on 1 September 2023 to over R10.00 per share on Monday, 19 May 2025.

This means that Blue Label Telecoms has reached a seven-year high on the JSE, which bodes well for its shareholders.

The figures below are reported annually, with data points recorded every six months.

Blue Label Telecoms Finances