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Rain’s strange valuation


Mobile network operator Rain’s valuation has increased by R4.35 billion to R22.3 billion over the last six months thanks to improved business performance and acquiring additional spectrum.

The latest valuation was revealed in African Rainbow Capital Investments’ (ARCI’s) audited annual financial statements for the year ended 30 June 2023.

African Rainbow Capital holds a 20.25% stake in Rain. It is the second-largest shareholder behind Paul Harris’ Quarme Private Equity Investments, which has around 41%.

Other large shareholders include Willem Roos’ Pluvial, Michael Jordaan’s Montegray Capital, and Nicola Harris’ Ata Fund 1.

Over the last six months, Rain’s valuation increased by R4.35 billion from R17.95 billion to R22.30 billion.

ARC attributed the increase to the business progressing beyond the period of significant net cash outflow and the recent acquisition of additional spectrum.

When Rain launched, it used its 1,800 MHz, 2,500 MHz, and 3,500 MHz spectrum to serve its wholesale and retail customers.

It bought additional spectrum — 2 x 10 MHz of 700 MHz and 20 MHz of 2600 MHz — for R1.43 billion at ICASA’s spectrum auction.

On the back of the successful spectrum auction, Rain launched its 4G mobile voice offering together with its new 5G home product, Rain One.

African Rainbow Capital said there has been strong interest in the Rain One product since its launch in May 2023.

It added that the mobile operator continues its ambitious rollout and marketing strategy to cover more towns and will continue densifying coverage in all major metros.

It said Rain is tracking well against budgets and is on track to achieve an EBITDA of over R2.5 billion for the year ending February 2024.

Rain versus Telkom

Rain’s R22.3 billion valuation means it is now worth nearly double Telkom’s market cap of R11.9 billion.

A year ago, Telkom and Rain were worth around the same. Telkom’s market cap was R17.5 billion, and Rain’s valuation R17.95 billion.

However, Telkom’s share price plummeted over the last year on the back of poor results and no concrete plan to turn things around.

The group’s revenue remained flat at R43.14 billion, but net income fell by 84.7% — from R2.6 billion in 2022 to R346 million in 2023.

Telkom also realised a significant impairment loss on two cash-generating units, Openserve and Telkom Consumer.

The total impairment loss amounted to R13 billion, which brings the company’s net loss for the year to R9.97 billion.

Telkom’s share price declined by over 50% over the last year, which saw its market cap shrink to under R12 billion.

So, although Telkom has incredibly valuable assets, its debt burden and operational inefficiency are dragging the company down.

Rain, in comparison, is on the up with a growing subscriber base and a lucrative wholesale agreement with Vodacom.

It has also kept its debt in check. Rain has been able to roll out a national 4G and 5G network without accumulating billions in debt.

Rain is run as a lean technology startup instead of a large corporate telecommunications company, which has worked well to ensure it does not go the same route as Cell C.

Rain versus Telkom
Measure Rain Telkom
Market Cap/Valuation R22.3 billion R11.9 billion
EBITDA R2.5 billion* R9.6 billion
*Budgeted for 2024
Mobile Networks
Mobile sites 9,000 7,546
Spectrum 174MHz 184MHz
Other Operations
Carrier-neutral data centres 0 10
IT business customers 0 1,345
Productive tower portfolio 0 3,916 towers
Fibre network 0 170,000km
*Estimates based on Rain projections

This article was first published by Daily Investor and is republished with permission.

Now read: Rain says fixed-5G plan with free mobile data and minutes is going strong



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