African Rainbow Capital (ARC) released its maiden full-year financial results last week, which included a valuation of R10.72 billion for new mobile operator Rain.
ARC has a 20% shareholding in Rain, and according to its results presentation, it values this shareholding at R2.144 billion.
This translates into a total valuation of R10.72 billion for Rain, which is higher than the R6.55 billion which Liquid Telecom paid for Neotel in February 2017.
What makes Rain’s valuation so surprising is that its assets do not come close to what Neotel had when it was acquired.
Rain’s main assets are its spectrum in the 1,800Mhz and 2,600Mhz bands, a growing LTE-A network, a wholesale roaming agreement with Vodacom, and a growing fixed-LTE and mobile subscriber base.
Neotel, in comparison, had a national fibre network, spectrum in the 800MHz, 1,800MHz, and 3,500MHz bands, data centres, and lucrative corporate and enterprise clients.
Neotel also has an established wireless network, with a large number of businesses and consumers as subscribers.
The valuations of Rain and Neotel before the acquisition therefore points to two possibilities: Rain is hugely overvalued, or Neotel was the biggest bargain ever.
ARC upbeat about Rain
ARC is upbeat about Rain’s growth prospects, with “encouraging revenue growth” and significant progress to further improve on network performance and stability.
Rain had 2,100 LTE-A sites in operation by the end of July 2018 and has a target of reaching 3,000 sites by 28 February 2019.
The company has three operating units, as described below:
- Networks, which builds and manages the Rain LTE-Advanced network. It is also responsible for the capital expenditure related to the network, and for roaming agreements with other major telecommunication companies.
- Business-to-Business, which provides fixed-wireless connectivity to end users.
- Mobile, which is Rain’s mobile strategy – which has been offered directly to the public since 6 June 2018.
“The appointment of Willem Roos, former CEO of Outsurance, as CEO of Rain, is encouraging and strengthens confidence in the business going forward,” ARC said.