Telecoms tower. Picture: BLOOMBERG/SUSANA GONZALEZ
Telecoms tower. Picture: BLOOMBERG/SUSANA GONZALEZ

Blue Label Telecoms, whose shares lost a fifth of their value in two days, says Cell C needs another R2.8bn in funding before it can stand on its own feet, and expects the mobile operator to reach profitability in late 2019.

Shares in Blue Label, which paid R5.5bn for 45% of Cell C last year, fell 18.2% on Tuesday and Wednesday as the two companies posted results. The firm’s market capitalisation was R6.48bn at Wednesday’s close.

Of concern to investors was that in the six months to June, Cell C’s net debt grew to R7.3bn, from about R6bn in August 2017, as the operator started building its network again.

Blue Label joint CEO Brett Levy said Cell C was doing better than expected on all metrics, including debt. Its debt “is less than what we had budgeted”, Levy said. “The market is impatient or the market doesn’t understand it [Cell C].”

Blue Label originally expected Cell C would need another R4bn until the end of 2019, Levy said, though “what only needs to be raised in Cell C until it turns cash positive and needs no more money is R2.8bn”.

From the third or fourth quarter of 2019, ahead of Cell C’s planned listing, the operator was likely to be “cash positive and self-funded entirely”.

About R1.4bn had already been raised — that money substituted a Blue Label loan — while another R1.4bn worth of vendor financing was needed to fund capital expenditure.

Cell C would end 2019 with R8.6bn to R9bn in net debt, Levy said. While the operator was unlikely to need it, Blue Label would consider extending another R300m to the operator, if required.

Cell C’s total revenues grew 5% in the six months to June, while its net loss after tax narrowed by a third, to R645m. Levy said that R360m of that loss was a foreign exchange loss, “which won’t happen in the future because we hedge everything”. Blue Label, which also distributes airtime and electricity, said its earnings before interest, taxes, depreciation and amortisation rose 4% to R1.3bn in the year ended May.

As much as R252m worth of Blue Label stock traded hands on Wednesday, versus average daily trade of just R4m.

“In the closing auction, someone placed a bid for 10-million shares at 685c, and there was a matching offer of about R5m .… You get a sense that 685c is a line the bulls on the stock are trying to defend,” said Cratos Capital trader Greg Davies.