Over the past week, the Coronavirus (COVID-19) outbreak caused carnage on the Johannesburg Stock Exchange (JSE). Share prices plummeted – many by double digits.
Telkom was also hit hard. Its share price declined from R31.58 on Friday 6 March to under R24.00 on Thursday 12 March.
This saw the company’s market cap dip below R12 billion – the first time this has happened since 2013.
This share price decline created the curious situation where Rain, which is a newcomer to the South African telecoms market, has a higher valuation than Telkom’s market capitalisation.
ARC’s financial results for the year ended 30 June 2019 showed that its investment in Rain increased from R2.144 billion on 30 June 2018 to R2.508 billion on 30 June 2019.
ARC holds a 20.6% shareholding in Rain, which puts the mobile operator’s valuation at R12.17 billion.
This means that Rain’s R12.1- billion valuation was higher than Telkom’s market cap of R11.87 billion on 12 March.
Rain versus Telkom
Rain has three main assets – spectrum, a growing 4G and 5G network, and a lucrative roaming agreement with Vodacom.
The roaming and facilities leasing agreement with Vodacom, which was recently extended to Vodacom’s full network, is core to Rain’s success.
Rain also generates revenue from its mobile, fixed-LTE, and 5G products, but this is almost negligible when compared to the overall value which Vodacom brings.
Telkom’s assets, in comparison, include a large client base, the country’s largest fibre network, and a strong mobile network.
Telkom also has more spectrum than Rain, it owns properties across the country worth billions, and it has a strong foothold in the corporate telecoms market.
It is therefore surprising that Rain’s valuation is higher than that of Telkom, especially when one does a side-by-side comparison of assets.