Cell C turnaround is good news for Blue Label

For years, Blue Label Telecoms has been a curious animal on the JSE: equal parts cash-generative prepaid product distributor and beleaguered telecoms operator through its investment in Cell C.

But that is set to change. A sweeping restructuring now under way aims to finally disentangle the two identities, clean up Blue Label’s financials and unlock value that’s been obscured by complexity.

At the heart of this transformation lies the long-awaited separation — and potential listing — of Cell C, South Africa’s fourth-largest mobile operator. The move, which would allow investors to value the telecoms business independently of Blue Label’s core prepaid distribution model, comes with a bold rebranding: Blue Label Telecoms will become Blu Label Unlimited Group. The dropping of “Telecoms” in the new name signals a clear strategic pivot to sharpen its identity as a leading fintech platform.

This is not the first time a Cell C listing has been floated. But in the past, the pitch was weak. Cell C, as a distant No 4 in a saturated mobile market, burdened with debt and an inferior network, was a tough sell. Today, that story has changed.

Under CEO Jorge Mendes, Cell C has undergone what Blue Label joint CEO Brett Levy calls an “exceptional turnaround”, built on a radical rethinking of the company’s infrastructure model.

The key was going capital-light. Rather than investing billions in towers and coverage, Cell C now piggybacks on the networks of Vodacom and MTN, using a roaming model called MOCN. It still controls its own spectrum — a valuable asset — but avoids the huge capital outlay that previously sank the business. That change alone has improved cash flow and customer experience, with Cell C now boasting 97.9% average network availability and the best video streaming performance in South Africa, according to Opensignal.

“Executing on our strategic priorities has driven double-digit growth,” Mendes said at the half-year results. Earnings before interest, tax, depreciation and amortisation (ebitda) grew 87% year on year, and mobile data traffic rose 27%. Particularly impressive has been the growth in its MVNO business — Cell C is the largest enabler of mobile virtual network operators in South Africa. That business now contributes more than 10% of Cell C’s total revenue and is growing rapidly, with MVNO data usage up 92% and subscriber numbers up 20%.

With Capitec’s reputation for simplicity and value, Cell C may have found its ideal partner in the race for prepaid dominance

One of the biggest contributors to this momentum has been Capitec Connect, a mobile offering launched in partnership with Capitec Bank. Initially slow out of the gate, the proposition was revamped in 2024 with lower prices, greater flexibility and broader package options. The results have been striking: Capitec’s client base for the service hit 1.6-million active users and generated a profit of R193m for the bank. With Capitec’s reputation for simplicity and value, Cell C may have found its ideal partner in the race for prepaid dominance.

According to CFO El Kope, the company is still on track to deliver R2.1bn in ebitda and about R500m in net profit for the 2025 financial year. Importantly, Cell C has begun servicing its debt, with interest payments now flowing to Blue Label and a R1bn capital repayment due in 2026.

The listing will be accompanied by a broader corporate restructuring. Blue Label plans to increase its stake in Cell C through a series of equity-for-debt swaps and asset transfers. The Prepaid Company (TPC), a wholly owned Blue Label subsidiary, will convert its debt claims into Cell C shares and transfer airtime assets now on its own balance sheet to Cell C in exchange for more equity.

On top of this, Cell C will buy Comm Equipment Company (CEC) — another Blue Label unit responsible for postpaid customers — to internalise its entire customer journey, from marketing and supply chain to billing and collections.

These transactions are designed to simplify Blue Label’s group structure and make Cell C self-sufficient. “We are now fully paid up,” Levy told investors. “We expect no more money to go into Cell C from Blue Label over the next 12, 24, or even 36 months. Or ever.”

That will come as a relief to long-suffering shareholders. Cell C’s troubles over the years have drained Blue Label’s resources, strained its balance sheet and muddied its financial reporting. With the planned changes, the remaining Blue Label — or rather, Blu Label — will look far leaner and less encumbered.

At its core, Blu Label Unlimited will remain South Africa’s largest distributor of prepaid electricity, airtime and value-added services. Its physical and digital points of presence number in the hundreds of thousands, and despite growing competition from mobile network operators’ own apps, Blue Label remains deeply embedded in the value chain.

Consumers still buy prepaid airtime through banks, spaza shops and retailers — and in many of those cases, Blue Label is the invisible engine behind the transaction. The company manages the back end: settlement systems, integrations with operators, technical support and fraud prevention. It’s hard to cut out a middleman when he controls the plumbing.

That’s precisely why Blue Label first acquired a 45% stake in Cell C in 2017. There was a fear that mobile operators would eventually bypass distribution partners such as Blue by going fully direct-to-consumer.

While some of that disintermediation has occurred — all the major networks now sell prepaid airtime and other services through their apps — the transition has not been as quick or complete as feared. Many South Africans still prefer or rely on alternative distribution channels, especially where app-based transactions are hindered by low-end phones, data costs or banking constraints.

For Blue Label’s remaining operations, ring-fencing Cell C offers a double benefit: financial clarity and renewed dividend capacity. The complexity of intercompany transactions — especially between TPC, CEC and Cell C — has made the group’s accounts notoriously hard to decipher. As Levy acknowledged: “We understand the complexity of our results. Hopefully, now that Cell C has the same year-end as us, this will be the end of complexity.”

That simplification could also free up cash. Treasury income, historically a major profit contributor, had been constrained by the need to fund Cell C’s turnaround. With that pressure off, and the group’s own debt reduced, dividends may be back on the table. “Our balance sheet is looking healthy, the strongest it’s been in years,” said Levy. “Hopefully, Blue Label will resume paying dividends this year. But obviously, that’s a board decision.”

Crucially, shareholders have already started to benefit from Cell C’s turnaround and the promise of more to come. Blue Label’s share price has rallied more than 240% over the past 12 months — a dramatic re-rating driven by operational progress and optimism about the pending structural shift.

If the listing goes ahead — likely to be some time in 2026 — Blue Label is expected to retain a controlling interest in Cell C, but minority stakes will be offered to the public. This structure will allow for consolidated reporting while inviting price discovery and capital injection.

The bet now is that both businesses — the platform and the operator — can thrive on their own merits. And for the first time in a long time, Blue Label’s story is no longer about what went wrong with Cell C. It’s about what comes next.