Blue Label swimming in cash
The group hikes its dividend by 64% on the back of strong cash generation and news that its Indian operation has turned profitable. By Duncan McLeod.
JSE-listed Blue Label Telecoms has hiked its full-year dividend by 64% to 23c/share for the 12 months ended 31 May 2012 after it brought in cash from operations of R528m.
Despite spending R800m in the 2012 financial year, including buying out Microsoft’s minority shareholding in the company, Blue Label has zero debt on its balance sheet and cash of about R2bn, some of which it says it will use to make acquisitions if any opportunities present themselves in its chosen markets of SA, India, Mexico and the UK.
The company, which is the biggest distributor of prepaid airtime in SA, lifted by 4% to R18,7bn. Headline earnings per share rose by 40%, though this was helped by a once-off non-recurring payment of R79,4m received. Gross profit rose by 13% to R1,2bn, lifting gross margins by half a percentage point to 5,7% from 5,2% previously. Co-CEO Mark Levy says he expects the compounding effect of annuity income and an increase in commissions to keep the gross margin number nudging higher in the 2013 financial year.
Blue Label’s Indian operation, Oxigen Services, turned a small profit for the first time, adding in R5,5m to the group’s income statement. The Mexican operation, where the group has partnered with bakery giant Grupo Bimbo, continues to lose money because of big investments in point-of-sale infrastructure.
Levy says Grupo Bimbo has operations in 17 Latin American countries, meaning there is ample room for organic expansion once the Mexican venture has had a chance to prove itself.
In SA, Blue Label’s focus on prepaid electricity is starting to pay dividends. Commission from the sale of prepaid power rose by 39% to R85m.
Despite the improvement in earnings and in profit margins, Frost & Sullivan research analyst Lehlohonolo Mokenela warns that the squeeze on margins from the price war between the mobile operators could affect Blue Label’s profitability levels in the future. This may be offset by the introduction of smaller denomination vouchers, which could result in increased sales volumes.
Mokenela is also confident that the Mexican and Indian operations will soon pay big dividends. “The company sees a lot of potential in the mobile banking market in India and is looking to capitalize on the high unbanked portion of the Indian population.” — (c) 2012 NewsCentral Media