Rain’s extraordinary valuation

African Rainbow Capital (ARC) currently values Rain at R15.03 billion, which makes the company far more valuable than Telkom.

ARC was launched by billionaire Patrice Motsepe in 2016 and the company listed on the Johannesburg Stock Exchange (JSE) on 7 September 2017.

Armed with strong empowerment credentials and excellent leaders, ARC invested in a diverse range of companies in financial services, agriculture, property, telecoms, BPO, and mining.

ARC’s investment portfolio includes many prominent companies, like Alexander Forbes, A2X, TymeBank, EOH, Metrofibre, Rain, Afrimat, and Val de Vie.

In its financial results for the year ended 30 June 2020, ARC said its investments had an intrinsic portfolio value of R11.139 billion.

A big contributor to this valuation – 27.9% of ARC fund’s total value – is Rain, in which it has a 20.7% stake.

ARC values its 20.7% stake in Rain at R3.111 billion, which means it the mobile operator’s total valuation is R15.03 billion.

It is also interesting to note that ARC’s valuation for its shareholding in Rain in worth more than ARC’s market cap of R2.96 billion.

This valuation is creeping up all the time. The table below provides an overview of Rain’s valuation since ARC bought a 20% stake in the operator in July 2017.

Rain Valuation by ARC
Date ARC Shareholding in Rain ARC’s Shareholding Value Rain’s Valuation
December 2017 20.0% R1.892 billion R9.460 billion
June 2018 20.0% R2.114 billion R10.570 billion
December 2018 20.0% R2.330 billion R11.650 billion
June 2019 20.6% R2.508 billion R12.175 billion
December 2019 20.7% R2.712 billion R13.101 billion
June 2020 20.7% R3.111 billion R15.029 billion

Rain’s assets

As South Africa’s fifth mobile operator, Rain aims to be a full-service mobile provider, focused on data.

Rain’s key assets are spectrum licenses with an allocation in the 1,800MHz and 2,600Mhz bands, a rapidly expanding mobile network, and a growing subscriber base.

Rain had 5,500 active 4G and 447 active 5G sites in South Africa as of the end of April 2020, with plans to increase its footprint to 1,500 sites by December 2021.

Ultimately more than 2,000 5G towers in larger metro areas throughout South Africa are planned.

The company is generating income through its roaming agreement with Vodacom, 4G fixed and mobile subscriptions, and 5G fixed subscriptions.

Neither ARC nor Rain is disclosing subscriber numbers. The latest figure comes from October 2019 when Rain had around 100,000 4G mobile data subscribers.

ARC did say that the national lockdown required more people to work remotely, which significantly increased the demand for affordable internet connectivity.

Rain experienced a surge in subscriber numbers during the COVID-19 period and managed to grow its subscribers base far excess of forecast growth.

“Although this growth is encouraging, Rain’s ability to control customer churn will be critical,” ARC said.

Rain versus Cell C and Telkom

Rain’s lack of legacy revenue streams places it in a great position for the future, and it definitely has many valuable assets.

There are, however, questions about its valuation in relation to its financial performance and subscriber growth.

Unlike other companies with investments in unlisted telecoms businesses, like Remgro with SEACOM and Blue Label with Cell C, ARC does not release Rain’s financials or subscriber numbers.

Without financial data or an asset register, it makes it impossible for analysts to accurately calculate the value of Rain.

This uncertainty has created speculation among industry players who spoke to MyBroadband that the operator is over-valued.

They highlighted that Liquid Telecom – which has more valuable spectrum assets, a national fibre network, and excellent corporate clients – was acquired for R6.55 billion in 2016.

Rain’s R15-billion valuation also exceeds Telkom’s current market cap of R12.4 billion, which, in comparison, has some of the most valuable telecoms assets in South Africa.

Telkom’s assets include millions of subscribers, the country’s largest fibre network, and an extensive 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.

ARC is, however, not looking to change its reporting on Rain. It said it only holds a 20.7% interest in Rain, which means it is a minority shareholder.

“Coupled with the fact that Rain is a privately held company, it means ARC is not in a position to release information to the market at liberty,” ARC spokesperson Ainsley Moos told MyBroadband.

He added that they have released key information to market, which they have also agreed on with the Rain leadership.

The table below provides an overview of how Rain compares to Telkom and Cell C in terms of assets and valuation.

Mobile Operator Comparison
Company Telkom Cell C Rain
Subscribers 12.0 million 11.8 million 0.4 million
Mobile data Yes Yes Yes
Fixed wireless data Yes No Yes
Voice services Yes Yes No
Fixed-line broadband Yes Yes No
National mobile network Yes Yes Yes
National fixed-line network Yes No No
Mobile spectrum
900MHz 22MHz
1,800MHz 24MHz 24MHz 34MHz
2,100MHz 30MHz 30MHz
2,300MHz 68MHz
2,600MHz 15MHz
3,500MHz 28MHz 142MHz
Valuation R12.4 billion R0.0 billion R15.0 billion

Rain valuation

The table below provides an overview of Rain’s valuation.

Now read: Rain explains why it does not offer mobile 5G

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Rain’s extraordinary valuation