Remgro, the largest shareholder in CIVH – the parent company of Vumatel and Dark Fibre Africa – has attached a R19.3-billion valuation to the telecommunications infrastructure holding company.
The implied valuation gives CIVH an intrinsic value significantly higher than Telkom’s market capitalisation. However, headline losses have grown, the group said in its interim financial results for the six months to end-June.
CIVH’s contribution to Remgro’s headline earnings amounted to a loss of R649-million (2019: loss of R204-million) – largely driven by once-off costs.
Significantly, CIVH contributed R608-million in operating profit (earnings before interest and tax), up 150.2% from R243-million a year ago. CIVH’s revenue contribution was R3.7-billion, up a solid 57.7% from a year ago.
“The decrease (in headline earnings) is mainly due to significant transaction and funding costs incurred relating to the acquisition of a further 65.1% stake in Vumatel during May 2019, as well as additional losses (10 months) accounted for Vumatel due to the interest acquired,” Remgro explained.
Remgro issued a guarantee to Rand Merchant Bank for a loan facility, which was granted to CIVH to fund the Vumatel acquisition. Remgro’s exposure related to this as of 30 June 2020 amounted to R3.3-billion.
Annuity income
“CIVH’s results were also negatively impacted by prudent credit provision due to the uncertainties created by the Covid-19 pandemic. Despite the increase in losses, Dark Fibre Africa’s revenue increased by 5%, as its annuity income grew to in excess of R179-million/month at 31 March 2020 (31 March 2019: R159-million).”
DFA’s contribution was negatively impacted by higher depreciation and finance costs because of the expansion of its fibre network.
Vumatel’s revenue contribution increased by 80% to R1.5-billion compared to the prior year, driven by a strong growth in fibre-to-the-home subscribers. However, its results were also negatively impacted by higher depreciation and finance costs driven by the expanding network.
Remgro said its 54.7% stake in CIVH had an intrinsic value of R10.6-billion (and a book value of R4.5-billion) at the end of the reporting period in June. This was up from R8.4-billion for CIVH as at 30 June 2019.
JSE-listed Telkom, South Africa’s former monopoly telecoms operator, by contrast, had a market value of R11.8-billion at the time of writing. That means Remgro believes CIVH was worth 65% more than Telkom at the end of June than the value currently attached to the former state-owned operator by investors.
During the 2019 financial year, Remgro advanced a loan amounting to R100-million to CIVH and earned underwriting fees of R58-million on a CIVH rights issue. The loan and outstanding amount of the underwriting fee would be converted to CIVH shares. On 31 March 2020, Remgro invested a further R167-million in CIVH in exchange for the loan and outstanding underwriting fee, which marginally increased Remgro’s interest in CIVH to 54.7%, from 54.4% previously. — © 2020 NewsCentral Media
