By Pritu Makan & Chantal Marx
Cell C is the fourth-largest mobile telecommunications provider in South Africa, boasting a highly recognisable brand and strong market presence. In contrast to MTN, Telkom and Vodacom, the group has pivoted to a capex-light approach (i.e. the group does not own its own infrastructure) to its mobile network, utilising its own spectrum assets in combination with physical network infrastructure owned by other mobile network operators (MNOs). This, together with its partnership-led model, enables national- grade coverage and reliability, while freeing up capital for innovation, digital platforms, and customer experience.
Cell C is the leading enabler of mobile virtual network enablers (MVNEs) and mobile virtual network operators (MVNOs) in South Africa, with a diversified business model across retail and wholesale, and a national dual Multi-Operator Core Network (MOCN) network strategy providing access to over 28 000 sites and more than 98.7% population coverage. In terms of direct clients, as at 31 May 2025, Cell C had ~7.6 million mobile subscribers (on a proforma basis). Prepaid customers represented ~89% of the Cell C's subscriber base, with postpaid customers making up a minority of the total subscriber base.
While Cell C is already owned by a listed entity and has operated within that framework, the separate listing of the company will enable the group to streamline its balance sheet, reinforce its growth strategy and is expected to help strengthen its competitive positioning. The listing is expected to be an enabler of key initiatives, including elevating the Cell C brand, enhancing access to capital to sustain growth, instilling public transparency and market discipline, and enhancing the group's profile with all stakeholders.
A long road to here
Cell C was incorporated in 1999 and launched as a mobile network operator in 2001. In 2006, Cell C pioneered MVNO services in South Africa, beginning with Virgin Mobile. In 2017, Blue Label Telecoms, now known as Blu Label Unlimited (BLU), subscribed for a 45% equity stake in Cell C for R5.5 billion as part of a broader recapitalisation aimed at reducing Cell C's debt and improving its financial position. The business remained challenged, however, and from late 2020, Cell C began its shift to a capex- and asset-light model, halting debt payments, cutting unprofitable services and sites, rebalancing its network, appointing new board members, and recapitalising again in 2022. As part of this initiative, BLU increased its effective ownership in Cell C to ~49.53%. The business deactivated its remaining physical towers in June 2023 and began to rely entirely on its virtualised network on MTN and Vodacom's infrastructure.
Cell C's legacy debt and its complicated capital structure (including a variety of special purpose vehicles (SPV's) and non-uniform ownership of the businesses of Cell C) remained key challenges, requiring a fresh, extensive pre-listing restructuring. In anticipation of the pre-listing restructuring, several agreements were made in September and October of this year that will effectively result in The Prepaid Company (TPC), a wholly-owned subsidiary of BLU, becoming the 99.94% shareholder in Cell C.
Immediately after the pre-listing restructuring, TPC will, for no consideration, dispose of shares to the Cell C executive team to ensure that they collectively hold 4.5% of the shares in issue just prior to the listing. TPC will be the selling shareholder and receive all proceeds from the offer currently on the table.
A unique business model
As mentioned above, Cell C's network is different to that of its competitors being MTN, Vodacom and Telkom. It does not own its own infrastructure assets, instead making use of shared infrastructure and spectrum sharing.
These agreements have made it possible for Cell C to rake an asset light approach, reducing fixed investment on a yearly basis which for traditional mobile network operators can run at between 10% and 25% of revenue per annum.
Secular tailwinds are still there
Cell C still sees several supportive secular tailwinds in the South African market.
Smartphone penetration is still comparatively low in the South African market at 27.3% as at the end of 2024. It is expected to continue to expand by just under 12-percentage points (ppts) in the next five years driven by broader 4G/5G coverage nationally as well as improvements in device affordability. Access can also be expanded by new innovative services like FoneYam from Pepkor that allows customers to rent a smartphone for a set period (via Pep, Ackermans or Dunns).
Data demand and traffic is anticipated to continue to grow as digital adoption continues and mobile video, social media and enterprise cloud usage continues to grow. Expanded 4G/5G network coverage and higher smart phone penetration will also assist. In US dollar terms, SA industry data revenue is set to grow at 14.7% per annum over the next five years and to become a much bigger proportion of revenue for telecommunications service providers.
MVNO growth is predicted to continue and to move closer to global penetration rates. This is beneficial for Cell C as it provides better network coverage at this point due to its dual-roaming agreements. South Africa is still very underpenetrated from an MVNO perspective relative to global norms (~2.3 times per Africa Analysis).
Financials
Post the pre-listing restructure, Cell C will report two lines of revenue - Service revenue and Equipment revenue. Within Service, revenue is derived from four main sources - Prepaid, Postpaid, Wholesale (MVNO's mainly), and Roaming and Other.
For the year ended 31 May 2025, revenue came in at R13.6 billion with service revenue up 7.7% to R11.6 billion. Management has guided for revenue to grow in the low-to-mid-single digits near term and in the mid-single digits longer term.
EBITDA of R3.7 billion translated to a margin of 26.6% and the operating profit of R2.9 billion came at a margin of 21.2%. In both cases, margin guidance from management was quite conservative, which would mean a drop in both metrics in the year ahead.
With the pre-listing structure taking effect, the only financial debt on the balance sheet post-listing will be a handset financing facility from African Bank. Leases at listing will include those related to buildings, motor vehicles and other "ordinary course of business" related assets. As such, debt servicing is not expected to be a major drag on the company's bottom line.
Due to losses incurred in prior financial years, the company has a sizeable R2 billion deferred tax asset on its balance sheet, which it is looking to release over time (at a pace of ~7% per annum). This will compliment profitability over the medium term.
Cell C's board has adopted a dividend policy targeting an annual payout of between 30% and 50% of free cash flow. The first dividend payment is expected to be in the financial year ended 31 May 2027. Large potential investments expected over the near term include a fresh spectrum auction that will likely see Cell C as a major bidder. It seems the company is in a liquidity position that will allow it to acquire this spectrum using internal resources and other financing facilities.
Investment case
Risks
Valuation and FNB SPM view
Cell C is an interesting alternative within the broader South African telecommunications landscape. We like the asset-light model and think that there are still growth opportunities for the business - particularly in postpaid/equipment and MVNOs.
The implied market cap based on the offer price range is R10 billion to R12.1 billion. This translates to a blended 12-month forward PE of 6.7 times at the bottom end and 8.1 times at the top end per our numbers. This is at a discount to Vodacom and MTN (who have substantial high-growth African market exposure), and in line with Telkom's current rating. We think the valuation is fair and are comfortable applying at market.
The risk embedded in this business is regarded as quite high, however, with the longer-term sustainability of the business being highly dependent on favourable and continued roaming agreements with the other competitor network operators.
How to apply
FNB is participating in the Cell C secondary sell down. Please note that the minimum application amount is R10 000 in increments of R1 000 thereafter.
FNB Stockbroking and Portfolio Management (SPM) - Log onto the FNB SPM website (shares.fnb.co.za). Navigate to My Portfolio>Corporate Actions.
FNB Share Investing (SI) - Send an email to shareinvesting@fnb.co.za. Please indicate your account number and the rand amount you would like to invest. Please be advised this is only available as a Share Invest product.
Please ensure funds are available. If your account is not funded the application will be cancelled.
Please note that we expect the offer to be oversubscribed. This means that you may not receive the full number of shares you have applied for. Allocations will be made on a proportional basis. You will only pay for the shares you receive.
If you do not have a Local Trader or Share Investing account, you can open an account on the FNB App or via FNB Online Banking:
Please note: For the Local Trader option on Online Banking, you will be redirected to the FNB Stockbroking and Portfolio Management website to complete your Local Trader application. You will be logged out of FNB Online Banking and logged into the FNB Stockbroking and Portfolio Management website. Click 'yes' to continue to complete the application process.
