African Rainbow Capital Investments (ARC) has released its financial results for the six months to 31 December 2019, which showed that Rain is valued at R13.1 billion.
Rain now accounts for 27.4% of the African Rainbow Capital Investments fund’s value, up from 26.8% six months earlier.
ARC said Rain aims to become a full-service mobile network operator, focusing on data as a primary offering.
Rain’s major asset is its spectrum. This includes an allocation in the 1,800MHz band and an allocation in the 2,600MHz band.
Its income streams consist of roaming income, 4G data sales, 5G subscriptions, and reseller income.
ARC said the growth prospects for Rain remain optimistic and that it is well positioned to become a major player in the 5G data market.
“Revenue growth has been encouraging and significant progress is being made to further improve on network performance and stability,” ARC said.
The ARC fund investment in Rain increased from R2.508 billion on 30 June 2019 to R2.712 billion on 31 December 2019. This increase was mainly a result of a fair value write-up of R183 million.
During the period under review, the ARC fund acquired an additional 0.2% shareholding in Rain for an amount of R21 million.
Strong network growth
Rain has a strong business-to-business (B2B) division and is currently building a dedicated national LTE-Advanced network.
“This network will eventually facilitate an environment where open access to the Internet becomes a reality in South Africa,” ARC said.
Rain currently has over 3,000 active LTE sites, and it is “expanding according to plan to achieve nationwide connectivity and improve on network quality”.
During October 2019, Rain launched the country’s first 5G network for fixed wireless Internet connectivity. Since then Rain has expanded its 5G network to over 300 live 5G sites.
Rain’s mobile strategy has been offered directly to the public since June 2018.
“Subscriber uptake has been steady, with the unlimited off-peak data package being the most popular,” ARC said.
Media coverage and social media posts are the major sales drivers in expanding the mobile customer base.
Rain’s R13.1-million valuation means it is now worth more than Blue Label Telecoms (which owns 45% of Cell C) and Telkom’s market caps combined.
What is even more surprising is that ARC’s valuation of its Rain shareholding – R2.712 billion – is now higher than ARC’s market cap of R2.04 billion.
Some commentators said Rain’s valuation is much higher than what it should be, especially considering that it is a newcomer to the saturated mobile market.
ARC dismissed these concerns. It said it uses a discounted cash flow model with a discount rate of 16.4% to value Rain.
Discounted cash flow is a valuation method used to estimate the value of an investment based on its future cash flows.
“In our view, this is a very conservative approach to valuing our investment in Rain and we are comfortable with this approach,” ARC told MyBroadband.
ARC added that the valuation in Rain is scrutinised by its auditors who follow a thorough process to confirm or amend the valuation.
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