Blue Label Telecoms: A Contrarian Turnaround Story
Blue Label Telecoms, the JSE's top-performing stock since September 2023 with gains exceeding 400%, is poised for another potential doubling as the company prepares for a major restructuring of its Cell C subsidiary within the next six months.
The restructuring includes a debt-for-equity swap and planned IPO that could unlock R27 billion in value from its current R13 billion market capitalisation.
Blue Label Telecoms (BLT) is a South African company that predominantly distributes digital tokens, such as prepaid airtime and electricity. In 2017, BLT acquired Cell C, a struggling mobile operator, which dragged the share price to a low of R2.60 in September 2023. This presented a contrarian investment opportunity when institutional ownership was very low and sentiment was negative.
Top 10 performers on the FTSE/JSE since September 2023
* BLT is selling Communication Equipment Company (CEC) to Cell C as part of the latest restructuring
Despite significant challenges including poor capital allocations, high debt, and complex accounting structures, BLT was trading at compelling valuations for those willing to look past the complications.
Theme: The Bank-Telco Battle
A cold war has been brewing between financial institutions and telecom companies for more than a decade. The smartphone made this inevitable, as consumers increasingly used their devices for banking, shopping, reading, working, talking, texting, and more.
African telecom companies made serious inroads into financial services. Safaricom's pioneering M-PESA in Kenya highlights this trend, with nearly 50% of the company's revenue now coming from financial services. MTN and Vodacom attempted to replicate this model across their African operations.
Capitec, being the innovative enterprise that it is, responded by leveraging its existing position. By 2022, it was processing 30% of all prepaid airtime in South Africa through its own channels, with BLT facilitating the prepaid engine in the background. This platform enabled Capitec to launch Capitec Connect, a Mobile Virtual Network Operator ( MVNO) roaming off Cell C's network, in September 2022.
Capitec Connect's growth has been remarkable. By December 2024, it gained 1.5 million subscribers, with a current run rate of 180 000 subscribers per month. For context, FNB launched its MVNO in 2015 and, by 2024, had only 958,000 subscribers - 30% less than Capitec achieved in just over two years.
This growth directly benefits Cell C, as every Capitec Connect subscriber becomes a Cell C subscriber. With Capitec's 22 million banking customers as a potential subscriber base, the growth runway is substantial.
Capitec's strategy goes beyond becoming a mobile operator. By studying mobile subscriber behaviour from banking customers, they can make better lending decisions, ultimately making Capitec a more profitable bank. This data-driven approach provides significant strategic value beyond simple MVNO revenue.
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