Barclays Bank International who are selling 60 percent of Telecel on behalf of Vimpelcom have valued the company at $200 million which means the 40 percent shareholding that Brainworks Capital is acquiring should be $73 million. The 60 percent which is up for sale is priced at $127 million.
In a development akin to the arbitrage (burning) of the hyperinflationary era Jane Mutasa claims that the investment in Telecel through Empowerment Corporation has increased to $200 million.
However, facts on the ground show that the business is worth $50 million or even less. Financial analyst Respect Gwenzi said while the business continues to trade as if everything is normal, it is far from the case.
He said over the years, the company has lacked leadership and this has been a major contributor to the value destruction that the company has experienced.
“While the earnings potential of the company are huge, the fact is that there has been a lot of value destruction mainly on the back of inefficiency and management ineptitude. Telecel has been operating like a tuckshop and as such it has been starved of resources for re-investment.”
Gwenzi said Telecel compared to the other mobile network providers has a lower earnings before interest, taxes depreciation and armotisation (EBITDA) and net income margin.
Telecel Zimbabwe’s 40 percent shareholders – the Empowerment Corporation (EC) – are embroiled in a wrangle over the sale of the stake to Brainworks. Telecel remain’s EC’s only asset since inception in 1998.
“To just give you an indication of how stressed the business was, in 2010 the company had a closing cash balance of $3.5 million.
“One would expect that number to be roughly within range of 25 percent of Econet’s cash flows given the proportional sizes of both companies were we to do a comparable analysis of the two companies using the subscriber base as the basis of our analysis.
“This means using the subscriber base as a basis, Telecel should’ve been holding a cash pile of roughly $17 million.
“At those numbers the company would’ve been looking at a valuation of $200 million with an EBITDA of $83 million if we use Econet multiples. But then this isnt the case.
“Telecel had an EBITDA of $26 million, a mere fraction of its true potential,” says the research note.
The analysis says that there has not been any equity capital raise in the last four years and if we were to consider that the company has had long-term liabilities of over $66 million and short term liabilities of $25 million then there is nowhere at such levels of gearing would the company have turned a corner and be valued at anything over $50 million.
“If we look at those numbers and look at the current trends using a comparable analysis with Econet which has publicly available numbers we can safely bet that a valuation of $50million is actually a bonus if we consider the fact that the company would be required to fork out over $130 million for an operating licence, its gearing and other factors,” reads the analysis.
Information gathered by our Harare Bureau shows that the depletion and stripping of cash in Telecel through various instruments has been to such an extent that the company was unable to pay the licence renewal fees and has had to negotiate a five year payment plan. All the cash that has been generated since inception in 1998 has been stripped out from the company to a point where it is running on an overdraft of $500, 000. herald