From ImaraSPReid:-
The management of Blue label has forecast that revenue and earnings will grow by 21.2% and 70% respectively for FY08. The 2008 forward PE range is therefore 21.9 - 25.67. Strong growth Potential from India Blue owns 35% of Oxygen in India which has established a rolled out 40,000 points of sale as at May 2007. Blue has stated that it is expected that the mobile service user base in India will rise to 484 million by 2011 from 149.5 million as at FY06 year end.. Placees must have a high level confidence in the growth potential froom this quarter to warrant the FPE range above. Key Risks 1. Non-exclusivity of various supply, distribution and WASP agreements. Some of Blue Label's agreements are non - exclusive and can be terminated at short notice. 2. Blue Label Telecoms is a high volume business with profitability that is very sensitive to variation in margins. Network operators determine margin available to the prepaid airtime distribution channel. Thus, Blue is exposed to possible margin squeeze by network operators. 3. Blue's business is dependent upon general economic conditions in the retail sector. Downturn in retail sector as a result of lower consumer spending could reduce demand for Blue's product and negatively affect profitability. The recent interest rate hike by the reserve bank of SA may reduce discretionary spending by retail consumers.
Recommendation Blue Label Telecoms is an interesting counter as it has a highly successful entrepreneurial group backing it. The management has successfully established the Blue label as one of the leading distributors of prepaid airtime in South Africa. There is potential for growth of the business as it expands into other developing economies where electronic tokens of value and transactional services markets are still in infant stage. However, growth will be limited in South Africa as the mobile penetration rate is above 70%. At the offer price of R5.75 - 6.75, and pending greater clarity regards contribution from outside SA, the counter is FULLY VALUED. IMO - allegedly biggest IPO post-Telkom. Has some very savy shareholders and will easily reach R8 by Jan '08 (i sound like Blank Frack don't I?)