Mark and Brett Levy, the sibling co-founders and co-CEOs of Blue Label Telecoms, have admitted that their deal to buy 45% of Cell C for R5.5-billion in 2016 was a mistake. But they have also expressed their frustration that investors continue to punish Blue Label for it, despite the solid performance of the group in recent years.
Mark Levy admitted this week that the underperformance of Blue Label’s share price, despite strong earnings growth in recent years, is “frustrating” to him and his brother. But they believe the looming recapitalisation of Cell C could be the trigger than unlocks a significant rerating in the Blue Label share price, which is languishing at about R5, well below its all-time high above R20.
Brett Levy said the group is trading at a price-earnings multiple (calculated using earnings before interest, tax, depreciation and amortisation) of about 3.5 times, grossly undervaluing the group given its earnings growth, cash generation and underlying assets.
“No one can dispute that it’s undervalued relative to what the company is, and produces, and has,” he said.
Blue Label on Wednesday reported interim financial results for the six months ended 30 November 2021 that showed headline earnings per share rose by almost 50% to 60.86c. It generated net cash from operating activities of R862-million, taking its cash balance at the end of the period to R2.94-billion, or more than 60% of its market capitalisation of R4.85-billion.
Since the ill-fated 2016 deal, Blue Label has written off the carrying value of Cell C shareholding in its entirety. It has also dramatically reduced the debt it incurred through that deal by selling assets, with its balance sheet in a much healthier position today than it has been for years. It has also exited its loss-making ventures in India and Mexico to focus on growing the South African business.
“Profits and cash have increased, but until we put out a very firm statement on the Cell C recap and where it is, we are ‘binary’ to investors… Without the Cell C exposure, you’ll see Blue Label run.”
Asked whether investors lost trust in the leadership team after the disastrous Cell C investment and whether this was the reason for the continued depressed share price, Brett Levy said: “We had to prove ourselves again, and I think we have. You lose trust in a day, and it takes years to get it back. But we are definitely on the right track.”
Mark Levy added: “Cell C has shut people’s minds to all the good stuff that is happening. We are not getting adjudicated on what we are doing. It always slants towards Cell C. Investors should focus their time and attention on how this business is growing… It’s frustrating if you look at what has been happening over last three to five years, at how much this business has transformed. It’s not getting the attention it deserves because of this binary notion of Blue Label and Cell C.”
“People trust you, then you make mistakes, and then they don’t trust you. But you have to earn the trust back. That’s the holding pattern Mark and I are in right now. We are slowly building trust again,” Brett Levy said. – © 2022 NewsCentral Media