Blue’s R135m clue

I WOULD not be surprised if Blue Label Telecoms [JSE:BLU] – one of the more interesting listings from the boom of 2007 - put out a cautionary announcement sometime soon.

A spike in trading volumes in the last week or so suggests there’s suddenly a very healthy interest being taken in Blue Label.

In a previous column, I highlighted the importance of monitoring the bigger trade volumes on the JSE as a clue to possible corporate action.

Most days it’s a mundane exercise: Old Mutual [JSE:OML], Richemont Securities [JSE:RCH], Steinhoff International Holdings [JSE:SHF], MTN Group [JSE:MTN], FirstRand [JSE:FSR], etc.

Thursday was a refreshing change. Top of the biggest volume trades table was Blue Label, with 27.8 million shares changing hands in deals worth a not insubstantial R135m. The share rose almost 13% in the process.

Admittedly R135m worth of trade is no big deal (MTN saw trade worth R800m, Anglo American [JSE:AGL] R900m and BHP Billiton [JSE:BIL] R700m) in the greater scheme of things.

But in the instance of Blue Label, trading involving nearly 28 million shares represented about 3.6% of the company’s issued shares.

Not many listed companies see 3.6% of their issued shares changing hands in a single day’s trading – especially not a medium-sized technology with six shareholders holding almost 65% of the issued shares.

I must confess to not being terribly familiar with Blue Label Telecoms. The few times the company has come up in conversation left me with the impression that the ordinary punter has not quite figured out the company’s modus operandi.

Blue Label is a surprisingly big enterprise (turnover in the year to end-May was R17bn, and gross profits R1.17bn) positioned in a high-growth area of the telecoms market. The company – and I hope I’m not simplifying this too much – is mainly a distributor of prepaid electronic tokens for cellular and electricity users in SA.

While it’s a big volume business, Blue Label’s trading margins can’t be described as portly. But the all-important cash conversion ratio looks encouraging, with operating profits of R569m mostly reflected in operating cash flows of R516m. The quick ratio (current assets/current liabilities) is more than 2:1 ,with cash on hand sitting at over R2bn.

Despite growth attractions locally and abroad (India and South America), the market’s enthusiasm has – until now - appeared somewhat muted.

Digging deeper

The company trades on a multiple of around 10 times earnings, and unit trust holdings in the stock appears to be limited to a collective holding of only R65m spread across eight funds.

But influential investors like Ellerines (via Shotput Investments), Investec Asset Management and Microsoft are listed as major shareholders in the last Blue Label annual report.

Quite possibly, Thursday’s large trade was merely an asset manager mopping up some stock after digesting Blue Label’s year to end-May results.

Digging deeper into the trading volumes might preclude such an innocuous deduction. I think it’s possible to discern a pattern that could support the notion that there might be a strategic investor on the prowl.

Statistics on McGregor BFA’s website show that Blue Label is not typically a “heavy volume” share, and that most daily trading volumes in the last couple of months come in at between 35 000 to 150 000 shares.

But in the last eight trading days volumes have been conspicuously heavy. On six of the days the daily volume was over 1 million shares, and on the other two days the volumes were 842 000 and 635 000.

One might suspect – I certainly do – that someone or some entity is aggressively accumulating a position in Blue Label on the open market.

After some late-night phoning around, it would seem those more familiar with Blue Label reckon Thursday’s big trades came courtesy of an offshore buyer.

For the record, there has also been the odd big trading day in June (10 million shares between the 17th and 18th and 7.5 million between the 25th and 28th) and July (3.4 million between the 26th and 27th).

It may be worth your while to keep tabs on Blue Label’s daily volumes for the next few days - and to keep an eye on Sens too.

- Fin24.com