Patrice Motsepe’s R25 billion Rain-maker

African Rainbow Capital’s Rain achieved a valuation of R24.95 billion in the company’s 2024 financial year, a significant increase over the last twelve months.

Mobile operator Rain’s latest valuation was revealed in African Rainbow Capital’s (ARC) recently released results for the year through June 2024.

ARC is an investment holding company founded by billionaire Patrice Motsepe, with a diversified portfolio of investments selected to deliver long-term capital growth to investors.

In its latest results, the company reported that its intrinsic net asset value grew by 21.5% to R18.62 billion.

The ARC Fund’s investment portfolio includes a combination of mature, high-growth and early-stage investments. 

The portfolio comprises 32.6% mature assets, 54.7% high-growth assets, and 12.7% early-stage assets. 

Its mature investments comprise 31 entities, while high-growth assets and early-stage investments comprise nine entities each. 

The high-growth investments included portfolio companies like the Tyme Bank Group, Rain, Linebooker and Capital Legacy.

One of ARC’s most notable investments is a 21% stake in Rain, which makes up 26% of its total fund value.

The latest ARC results show that Rain has reached a valuation of R24.95 billion, up significantly from the R23.08 billion valuation it achieved in the first half of 2024.

Rain’s valuation shot up due to an additional R126 million investment from ARC and fair value gains of R598 million. This increased the mobile operator’s net balance from R4.52 billion in 2023 to R5.24 billion in 2024.

ARC explained that the significant investment gains Rain achieved in 2024 were largely a result of the company achieving its forecast and progressing on its growth trajectory, coupled with a positive take-up of its rainOne product performance

ARC said Rain has ranked first as the top-performing operator in the DataEQ/PwC Telecommunications Industry Index 2023. 

“The company secured the number one position in both operational performance and public net sentiment, making it the only operator in the industry with a positive net sentiment,” ARC said.

“This achievement establishes Rain as South Africa’s most liked network provider.” 

In addition, the mobile operator’s introduction of rainOne, along with its 101 5G router, has significantly boosted Rain’s growth. 

This, coupled with the business’s move beyond its most significant period of net cash outflows, has been a key factor in the increase in the fair value of Rain’s investment. 

In July 2024, Rain launched its standalone 4G mobile service, and it continues to expand its coverage in various towns and major metros nationwide.

The company achieved its budgeted EBITDA of R2.5 billion for the year ended February 2024. 

Earlier this year, ARC co-CEO Johan van Zyl said at the company’s interim results presentation that Rain had turned profitable based on EBITDA, which increased to R2.3 billion.

He noted that Rain’s free cash flow is “nicely positive and growing” and was on track to achieve an EBITDA figure of over R2.5 billion for the year ended February 2024 – which it now has.

“Rain has solidified its position as an affordable data and mobile service provider and continues to experience substantial subscriber growth,” ARC said.

“While risks persist, Rain is well-positioned to manage them and further establish itself as a trusted brand in South Africa.”

Rain’s valuation compared

Rain’s R25 billion valuation can be difficult to grasp for a company for which very little is known about its financial performance.

However, comparing it to South Africa’s listed telecoms provides a clearer picture of just how valuable Rain – which was founded in 2018 – is considered to be.

While Rain’s valuation does not come close to the market caps of South Africa’s two largest telecoms – Vodacom and MTN – it far surpasses that of Telkom and Cell C-owner Blue Label.

Telkom has been an established telecom provider for decades and achieved a higher EBITDA in the first quarter of this year than Rain did in its entire financial year.

In a trading update for the first quarter through June 2024, Telkom reported 3.9% growth in group revenue to R10.91 billion and a 24.1% increase in EBITDA to R2.78 billion.

Yet, Telkom’s market cap on the JSE shows it is valued at R14 billion – over R10 billion less than Rain’s valuation.

Blue Label, which owns mobile operator Cell C, is valued at a mere R4.38 billion. 

Rain’s valuation can be justified if the company is exceptionally profitable, but ARC has been very reluctant to share any meaningful information on Rain’s profitability. 

This means that, for now, investors can only speculate on the company’s performance.

Below is a comparison of Rain’s valuation and the market caps of South Africa’s largest listed telecoms

Company	Market cap/valuation
Vodacom	R232.43 billion
MTN	R176.65 billion
Rain	R24.95 billion
Telkom	R13.99 billion
Blue Label	R4.38 billion