Patrice Motsepe’s African Rainbow Capital (ARC) Investments has attached a remarkable R13.1-billion valuation to Rain, South Africa’s fifth mobile operator, giving it a value 40% above Telkom’s market capitalisation at the time of writing.
The JSE-listed investment group attached a value of R2.7-billion to its 20.7% stake at the end of December 2019, it said in its interim results published on Thursday. It increased the fair-value assessment of its Rain stake by R183-million, it said.
ARC Investments is an investment holding company that aims to provide shareholders with long-term capital appreciation by indirectly investing in a diversified portfolio of unlisted and listed investments.
During the second half of 2019, the ARC Fund acquired an additional 0.2% shareholding in Rain for R21-million (implying a valuation on Rain of R10.5-billion).
“The ARC Fund investment in Rain increased from R2.5-billion at 30 June 2019 to R2.7-billion at 31 December 2019, mainly as a result of a fair-value write-up of R183-million (30 June 2019: R364-million),” ARC Investments said in its interim financial report.
The valuation, which is based on a discounted cash flow (DCF) model, is particularly startling given the value destruction of listed telecommunications shares in the same period. DCF is a method of valuation method used to estimate the value of an investment based on future cash flows. At the time of writing, the DCF valuation attached to Rain was nearly a fifth of MTN Group’s market cap and well in excess of Telkom and Cell C shareholder Blue Label Telecoms’ combined market valuations.
Full-service operator
Rain now makes up 27.4% of the total value of the ARC Fund, from 26.8% before.
ARC Investments said in its interim financial report that Rain is aiming to become a full-service mobile network operator, focusing on data as a primary offering.
“The major assets constitute spectrum licences, including an allocation in the 1.8GHz band, along with the other major operators, as well as an allocation in the sought after 2.6GHz band. Rain has a significant business-to-business division and intends to build a dedicated national LTE-Advanced network that will eventually facilitate an environment where open access to the Internet becomes a reality in South Africa, with the best possible quality and Internet speed, at affordable rates.”
Rain’s income streams consist of roaming income (from Vodacom), 4G data sales, 5G subscriptions and reseller income. It has about 3 000 active 4G/LTE high sites and about 300 5G sites.
“Overall, the growth prospects for Rain remain optimistic. Revenue growth has been encouraging and significant progress is being made to further improve on network performance and stability,” ARC Investments said. “Rain is well positioned to become a major player in the 5G data market.” — © 2020 NewsCentral Media
