Blue Label: Edging closer to tipping point. Ask Allan Gray.

Blue Label Telecoms listed its shares on the JSE at the peak of the 2007 boom. Despite a business that's grown well beyond even the wildest expectations of founders and  joint CEOs Mark and Brett Levy, the shares still trade lower than the first day's close. A cautionary tale for those sucked into bubbles. But also a trigger for long-term investors who have been biding their time. Allan Gray is among them, having scooped up more than a fifth of Blue Label's equity in recent months. Another value investor, Piet Viljoen of RECM, is also buying. It often takes longer than everyone initially expects for businesses with unique business models and great potential to hit their straps. Blue Label is edging ever closer to that tipping point. – AH   

GUGULETHU MFUPHI:  Blue Label Telecoms posted a six-percent increase in full year headline earnings per share.  The company's joint Chief Executives, Brett and Mark Levy, have joined us to unpack the numbers. Let me start with you, Mark.  Electricity, no doubt always a 'feel-good' story for you; are you, yet to experience challenges in that arena?

MARK LEVY:  I think what's really come to the forefront is our technology ability to deliver, on behalf of the Municipalities, so for us; it's been a star performer.  We're seeing no slow-down, and I think the no slow-down is as a result of us signing up more Municipalities, and increasing our distribution network.  Currently, there's about nine million metres deployed in South Africa.  Government has intimated they will roll out another nine million, so we're seeing the growth of electricity, for a long time to come.  Plus the advent of additional other products, like pre-paid water and stuff like that, so that space, in the Municipality space, is still very exciting for us.

ALEC HOGG:  Mark, when we spoke six months ago, I said to you, "When are you going to get past that listing price of yours?"  The first day of listing at R8.60 and today it's R8.10.  How many years has it taken you?

MARK LEVY:  Yes, well Brett and myself, as the largest shareholders, feel it most – we also wanted to ride it but it was R6.75, Alec, when we listed.

ALEC HOGG:  You listed at R6.75, but on the first day of listing, you'd remember, you closed at R8.60.

BRETT LEVY:  Correct, we closed at R8.60.

ALEC HOGG:  So those punters who bought the shares at R8.60, they are still holding on.  They're saying, "When are we going to get back there?"

BRETT LEVY:  I think what we tried to do, obviously besides from a work point of view, is we brought our dividend forward, and so we meant to have started at one year later than we did, so we're on our fifth dividend.   We have increased our dividend policy, year-on-year, so we've increased the amount we've paid out, including this year, where we've increased it again, by eight-percent to 27 cents a share.  Definitely, from a dividend yielding share, definitely improved in giving our shareholders a return but, yes, I think you're right.  We listed at R6.75, we did go to R8.60, but I think we are doing all the right things, and, in our mind, sooner or later, we are going to have the kick, which we think we deserve, and where we're heading towards.

ALEC HOGG:  Well Allan Gray seems to agree, so it is interesting to see a text stock, being a value stock, a value investor over 20 percent, now held by Allan Gray.   Are they tough shareholders to have?

MARK LEVY:  No, I think they're very fair, when we sit down with them.  They buy into the long-term strategy, so what they believe is the game plan we are implementing, both locally, and abroad, they are long-term, strategic investors.  I think we get more pressure from the guys, you mention the word, 'the punters', who are in and out, and want results today.  I think the long-term; value investors are definitely seeing a lot more strategic value in our play.

ALEC HOGG:  I saw you being, mentioned by Piet Viljoen as well, another deep-value investor, so you are definitely pulling in the right kind of shareholder, is that important to you?

MARK LEVY:  Very much so.  I think when we go on our road shows and we actually sit down and speak to these investors, and tell them what we are doing in the market places, we are really getting a great reception from them.  For us, it is great to have an Allan Gray on board.  It's great to have their support in it and I think, as long as we are delivering on our strategy, we'll find more support like that.

GUGULETHU MFUPHI:  Well maybe the support comes from what you are telling them, so maybe you can give us the inside info, Brett, as to what it is that he does?

ALEC HOGG:  And you're not, allowed to tell them anything different to the rest of us.

BRETT LEVY:  No, that's correct.  For us, and I know we always sound bullish but it's because the strategy and the vision of what we started with, was to actually build a very strong distribution channel.  We believed that the future of pre-paid, not outside of telco's, but just pre-paid as a whole, would all rest one day, in who controlled the distribution.  What we've done over the last four to five years, is invest a lot of money into controlling and getting our distribution channel to a massive scale, and then to add-on the products.  What we find very bullish is, the vision of strategy we started with has just been growing and growing, and we can see it coming together.  To replicate the barrier for entry, to replicate the distribution that we've done, it's not an overnight thing.  It's taken us years, and it doesn't matter how much money you come in with.

If you want to have 100 000 points of presence, it is going to take you ten to 12 years.  It doesn't matter how much money you throw at it, and then you're going to have a better product, so the barrier is just really difficult.  Now that our distribution is coming to a point, where we are reaching critical mass, yes, we continue to grow it, but critical mass, where we're literally touch in every part of every South African.

Now to add on new products, services, and the future for us really looks good.

ALEC HOGG:  Remember last time, again that you were here, you spoke about Cell C and you had a bigger share of Cell C.  We've had our problems with Cell C. 

GUGULETHU MFUPHI:  He's had them.

ALEC HOGG:  I've had my problems.  I'm no more with Cell C.  Now I'm with MTN because the network just seemed to be dropping all the time.  Are you finding that, since Alan Knott-Craig left the fire, that things are changing there?

BRETT LEVY:  Not at all, actually.  The new CEO who's come in, José de Santos, in our opinion really good.  He's a street fighter, if I can call it that.  He really knows how to take the battle to the other networks, so definitely no slowdown.  On the network side, I know you've had your own experience but, in our experience, it's a lot of perception more than reality.  They do have a big coverage.  They are growing it out quickly.  I guess, maybe in certain areas, a little bit less but the amount of, I guess the perception is much worse, than the reality of it.

ALEC HOGG:  Yes, but the perception is reality if your phone calls don't come through.  If your phone never rings and you just see a missed call.  Anyway, that's pre-paid is where you are.  Have you got a bigger share still, Mark?

MARK LEVY:  In terms of Cell C?

ALEC HOGG:  Of Cell C, then the other two.

MARK LEVY:  Look, if you see our latest results, you'll see that Cell C definitely grew in our base.  I think the one that took the most flack, I would say, is MTN.  Vodacom remain pretty consistent.  Telkom grew a little bit but Cell C has definitely made in-roads, and they seem to be the consumer champion.  For us, we're happy to drive those products into our basis.

ALEC HOGG:  The Pick 'n Pay of cellphones.

GUGULETHU MFUPHI:  Consumer champions, hey!  Well, unfortunately that's where we have to leave it for today.  We are, slightly under pressure, regarding time but that was the joint Chief Executive of Blue Label Telecoms, Mark, and Brett Levy.