Allan Gray explains investment in Cell C

Allan Gray believes Cell C provides a strong investment opportunity, with the telecoms provider reinventing itself over the past decade. 

This has created a capital-light business that can offer specialised services in the Mobile Virtual Network Operator (MVNO) space, which has become increasingly popular in South Africa. 

Now that Cell C has been effectively separated from Blu Label, which Allan Gray’s Sean Munsie admitted has a complex structure, the future value of the telecoms player is much clearer. 

Speaking at Allan Gray’s The Times roadshow, Munsie explained why the asset manager is one of the largest investors in Cell C, when other market participants appear to be running the other way. 

Following the separate listing of Cell C on 21 November, Allan Gray revealed it held a stake of 15.54% in the company. At the time, this was valued at around R1.4 billion.

The asset manager effectively saved Cell C’s IPO, with its investment equating to 50% of the public float offered on the JSE. 

This is coupled with Allan Gray’s significant investment in Cell C’s parent, Blu Label, where it holds a 14% stake. Munsie explained that the investment in Cell C came about via Allan Gray’s holding in Blu Label. 

“The Blu Label thesis was less about Cell C and more about their value-added payment services business, where it provided prepaid services across mobile networks and other areas,” Munsie explained. 

“They have been owners of Cell C both on the equity and on the debt side, while also offering the telco prepaid airtime advances over the past few years. Quite frankly, the structure has been quite complex.” 

This has made it difficult to see the underlying equity value of the Cell C business, with investors lacking clarity on its financial performance and future strategy. 

“They have done a lot of decent work in untangling much of that mess and cleaning up the balance sheet to make Cell C investable,” Munsie explained. 

“The opportunity came about in the third quarter of 2025 where Blu Label were looking to unbundle Cell C and raise some equity in the market, which we participated in.”

Say goodbye to Cell C as you knew it

The Cell C that Allan Gray holds a 15.54% stake in is very different to the telecoms provider of the past that tried to take on MTN and Vodacom. 

As an emergent player in this space two decades ago, Cell C was seen as a disruptor in the market with the potential to take market share from MTN, Vodacom, and especially Telkom. 

However, this business case did not play out as expected, with the intense capital investment required to build out a network, secure spectrum, and maintain connectivity resulting in Cell C struggling to match the service offered by the big players. 

Telecoms markets around the world are relatively concentrated for this reason, as the capital required to develop and maintain a network is beyond the reach of small players. 

Without scale, the network investment is not economically viable, leaving challengers as small players in a big market and, in Cell C’s case, unprofitable. 

The new Cell C, Munsie explained, is not the same business it was 15 or even 5 years ago, having undergone a fundamental transformation. 

“Cell C is not the struggling fourth player in the market anymore. They have reimagined their role within the South African telecoms space as a capital-light business,” Munsie said. 

“They almost operate as a spectrum and license partner to MVNOs in South Africa. That space, locally, has been underpenetrated in comparison to global peers.”

Munsie was referring to Cell C’s repositioning as a near-pure MVNO one-stop-shop, which CEO Jorge Mendes has described as a “lean machine”. 

Mendes previously explained that this model will enable Cell C to operate with a profit margin that is similar to and, in some cases, greater than its direct-to-consumer business. 

Cell C’s focus on its MVNO offering enables it to provide its customers, typically large banks and retailers, with tailor-made solutions. 

As a result, it has an edge over some of its larger competitors, which are not willing to squeeze their margins to engage with certain market segments through MVNO partnerships.

Some of Cell C’s largest MVNO partners include FNB Connect, Capitec Connect, and the more recently launched Old Mutual Connect.

“We are now starting to see the growth of the MVNO space in South Africa, with Cell C playing a major role in the wider picture,” Munsie said. 

“It is worth reiterating, though, that in terms of look-through exposure in the Allan Gray Balanced Fund to Cell C, while we would be excited about it, it is not going to move the needle at a headline type of return level.”