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There aren’t too many listed market-leading technology businesses in South Africa for local investors to consider for their portfolios and with a wave of optimism sweeping the sector globally it’s easy to feel left out. The appeal of Blue Label Telecoms [JSE:BLU] (BLU) is with Microsoft holding just under 12% of the business the logic follows if it’s good enough for a worldwide leader then it probably does have some growth prospects. An international IT business available at a South African price.
However, for would-be investors the share has always looked expensive. Listed at around 800c/share, it was probably quite attractively priced when it hit sub-400c in October 2008. Since then it’s traded at between 500c and 700c/share but has been sold down over the past few weeks, in line with the broader market. BLU has also been burnt by its ties to Multi-Links in Nigeria, and the company announced it was exiting the region to focus on other countries, specifically Mexico and India – a sign that management knows when to cut its losses.
That leaves an investor buying a business with a 10 times earnings multiple, a 2,4% dividend yield and a shade under R2bn in cash in the bank. Is it worth a punt at those levels? Professional investors don’t seem to think so and were net sellers of the share in first quarter 2011. However, the price was supported by the Satrix Divi reweighting, with BLU currently making up 4% of that dividend-yielding portfolio. That’s why we tentatively consider the share a “buy” at beneath 500c.
Good cash flows and dividends are always an important consideration in a tough market. BLU scores on both those fronts.
Finweek battled to find a company we could directly compare the offering of BLU with and eventually settled on Visa, as it shares some similar characteristics. If you were a current buyer of Visa shares you’d be paying 15 times earnings and getting less than 1%. That compared against nine times earnings and 2,5% yield means you have to consider BLU for your portfolio.
However, for would-be investors the share has always looked expensive. Listed at around 800c/share, it was probably quite attractively priced when it hit sub-400c in October 2008. Since then it’s traded at between 500c and 700c/share but has been sold down over the past few weeks, in line with the broader market. BLU has also been burnt by its ties to Multi-Links in Nigeria, and the company announced it was exiting the region to focus on other countries, specifically Mexico and India – a sign that management knows when to cut its losses.
That leaves an investor buying a business with a 10 times earnings multiple, a 2,4% dividend yield and a shade under R2bn in cash in the bank. Is it worth a punt at those levels? Professional investors don’t seem to think so and were net sellers of the share in first quarter 2011. However, the price was supported by the Satrix Divi reweighting, with BLU currently making up 4% of that dividend-yielding portfolio. That’s why we tentatively consider the share a “buy” at beneath 500c.
Good cash flows and dividends are always an important consideration in a tough market. BLU scores on both those fronts.
Finweek battled to find a company we could directly compare the offering of BLU with and eventually settled on Visa, as it shares some similar characteristics. If you were a current buyer of Visa shares you’d be paying 15 times earnings and getting less than 1%. That compared against nine times earnings and 2,5% yield means you have to consider BLU for your portfolio.
