Rain is now twice as valuable as Telkom

The valuation of mobile network operator Rain has surged by R4.35 billion, reaching R22.3 billion over the past six months, fueled by enhanced business performance and the acquisition of additional spectrum. The latest valuation was disclosed in the audited annual financial statements of African Rainbow Capital Investments (ARCI) for the year concluding on June 30, 2023.

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African Rainbow Capital holds a 20.25% stake in Rain, ranking as the second-largest shareholder after Paul Harris’ Quarme Private Equity Investments, which holds around 41%. Other significant stakeholders include Willem Roos’ Pluvial, Michael Jordaan’s Montegray Capital, and Nicola Harris’ Ata Fund 1.

Rain’s valuation has swelled by R4.35 billion, surging from R17.95 billion to R22.30 billion over the past half-year. ARCI attributes this growth to the company’s progression beyond the phase of substantial net cash outflow and its recent spectrum acquisition.

Initially, Rain utilized the 1,800 MHz, 2,500 MHz, and 3,500 MHz spectrum to serve its wholesale and retail customers. It subsequently procured additional spectrum, including 2 x 10 MHz of 700 MHz and 20 MHz of 2600 MHz, at ICASA’s spectrum auction for R1.43 billion. Capitalizing on the successful spectrum auction, Rain introduced its 4G mobile voice offering and unveiled its new 5G home product, Rain One.

Since its launch in May 2023, Rain One has garnered significant interest. The mobile operator maintains an ambitious rollout and marketing strategy, expanding its coverage across more towns while densifying its presence in major metropolitan areas. ARCI affirms that Rain is tracking well against its financial targets and is poised to achieve an EBITDA exceeding R2.5 billion by the end of February 2024.

Rain’s current valuation of R22.3 billion positions it as nearly twice the worth of Telkom, which boasts a market capitalization of R11.9 billion. A year ago, both Telkom and Rain were roughly equivalent in value, with Telkom’s market cap at R17.5 billion and Rain’s valuation at R17.95 billion.

Telkom’s share price, however, experienced a substantial decline over the past year due to disappointing financial results and a lack of a clear turnaround strategy. Despite stable revenue of R43.14 billion, the company’s net income plummeted by 84.7%, dropping from R2.6 billion in 2022 to R346 million in 2023. Telkom also incurred a substantial impairment loss of R13 billion on two cash-generating units, Openserve and Telkom Consumer, resulting in a net loss of R9.97 billion for the year.

Over the past year, Telkom’s share price dwindled by over 50%, causing its market capitalization to dip below R12 billion. In contrast, Rain is thriving, boasting a growing subscriber base and a lucrative wholesale agreement with Vodacom. The company has managed to maintain a manageable debt level while rolling out a national 4G and 5G network, distinguishing itself as a lean technology startup rather than a large corporate telecommunications entity, effectively avoiding the pitfalls experienced by Cell C.