Investors have lost faith in us, admit Blue Label co-founders
Mark and Brett Levy, the sibling co-founders and co-CEOs of Blue Label Telecoms, have admitted their deal to buy 45% of Cell C for R5.5 billion in 2016 was a mistake. But they also expressed frustration that investors continue to punish Blue Label for it, despite the group’s strong performance 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” for him and his brother. But they believe Cell C’s impending recapitalization could be the trigger that unlocks a significant revaluation in Blue Label’s share price, which languishes at around 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 amortization) of around 3.5 times, grossly undervaluing the group given the growth in its earnings, cash generation and underlying assets.
“No one can argue that it’s undervalued compared to what the company is, produces and owns,” he said.
Blue Label on Wednesday released interim financial results for the six months ended Nov. 30, 2021, which showed overall earnings per share increased nearly 50% to 60.86 cents. It generated net cash from operating activities of R862 million, bringing its cash balance at the end of the period to R2.94 billion, or more than 60% of its market capitalization of 4.85 billion rand.
Since the ill-fated deal in 2016, Blue Label has written off the book value of Cell C’s shareholding in its entirety. It has also significantly reduced the debt it incurred in the transaction by selling assets, with its balance sheet in a much healthier position today than it has been for years. It also ditched its loss-making businesses in India and Mexico to focus on growing the South African business.
“Earnings and cash have increased, but until we release a very strong statement on the Cell C recap and where it stands, we are ‘binary’ to investors…Without the exposure of Cell C, you will see Blue Label working.”
When asked if investors had lost faith in the management team after Cell C’s disastrous investment and if that was the reason for the continued decline in the share price, Brett Levy said: ” We had to prove ourselves again, and I think we did. You lose confidence in a day and it takes years to get it back. But we are definitely on the right track. »
Mark Levy added: “C-Cell has closed people’s minds to all the good things that are going on. We are not judged on what we do. It still leans towards Cell C. Investors should focus their time and attention on how this company is growing… It’s frustrating if you look at what’s happened over the last three to five years, how this company 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, then they don’t trust you anymore. But we have to regain trust. This is the holding pattern Mark and I are in right now. We are slowly restoring trust,” Brett Levy said. – © 2022 NewsCentral Media