Shares in Blue Label Telecoms enjoyed a rare upswing on Friday, a day after the JSE-listed technology group issued a trading update that showed its core business continues to perform well despite the ongoing woes at Cell C.

Blue Label was trading hands at R3.04/share at 10.25am in Johannesburg on Friday, up 10.6% on Thursday’s close, after the group wrote down the carrying value of its 45% stake in Cell C to nil.

It’s a rare respite for a share that has been pummelled in the past 18 months as investors have grown increasingly nervous about the prospects for Cell C over its continued losses and its distressed balance sheet.

In the past three years, Blue Label shares have lost more than 85% of their value; in the past year alone, they’ve fallen by 50%.

Blue Label said on Thursday that it will take an almost R6.71/share hit to its earnings per share for the full-year to 31 May 2019 thanks in large part to the write-down of the value of its stake in Cell C.

It and fellow JSE-listed Cell C shareholder Net1 UEPS Technologies said on Thursday that they were impairing the carrying value of their investments in the mobile operator to R0.

Core earnings

However, excluding this and impairments in its Indian operation, Blue Label said it expects core headline earnings from the balance of the entities within the group to be between R885-million and R922-million compared to R716-million in the prior year. That equates to a growth of between 24% and 29%.

“After taking into account the increase in the weighted average number of shares in issue, core headline earnings per share from the balance of the entities within the Blue Label group are expected to be between 96.95c and 100.95c for the year ended 31 May 2019, compared to 83.65c in the prior year. This represents an increase of between 16% and 21% on the prior year,” it said.

Both Blue Label and Net1 are confident that Cell C’s prospects will soon improve.

“We believe that Cell C’s long-term prospects will significantly improve once it has been recapitalised,” said Net1 CEO Herman Kotze in a statement to the company’s shareholders.

Cell C is expected to provide details of a planned recapitalisation, led by businessman Jonathan Beare’s Buffet Consortium, in the coming months. It is also “deepening” a roaming agreement with MTN South Africa, which could result in it reducing its capital expenditure over time.