Rain valuation increases to R18 billion

Brandon Leigh

Rain’s valuation increased by 9.7% to R17.95 billion on the back of strong 4G and 5G sales, the successful spectrum auction, and additional investment.

ARC Investments released its annual financial results today, which showed growth in its intrinsic net asset value per share of 14.7%.

The growth results from good financial performances by some of the businesses it has invested in, including Rain and TymeBank, Alexforbes, Fledge Capital, and Capital Legacy.

Rain is the biggest contributor to ARC Investments’ net asset value and comprises 26.6 % of the ARC fund’s value.

The ARC Fund’s share in the value of the investment in Rain increased from R3.314 billion on 30 June 2021 to R3.635 billion on 30 June 2022.

As such, many investors keep a close eye on Rain’s valuation, especially because ARC does not release detailed financial and operational data about the mobile operator.

Some stakeholders are concerned about the sustainability of Rain’s wholesale revenue from Vodacom.

The successful spectrum auction in March 2022 means Vodacom will rely less on Rain for its 4G network capacity, which can impact Rain’s roaming revenue and valuation.

Rain CEO Brandon Leigh has also previously said their valuation is based on a hockey stick growth assumption, which means a lot of goodwill is baked into the valuation.

ARC’s latest results do not mention these risks, and the value of the ARC Fund’s interest in Rain has increased by 9.7% for the year.

The reason for this increase is three-fold, ARC said.

  • Rain continues to deliver well on 4G and 5G sales.
  • The increased valuation considers Rain’s business plan post the spectrum auction.
  • ARC Investments invested an additional R56 million in Rain.

The company said demand for Rain’s 4G and 5G products has been sustained throughout and post the easing of Covid-19 restrictions.

It added that the increased valuation also considered Rain’s business plan post the spectrum auction.

Rain acquired 2x10MHz in the 700MHz band and 20MHz in the 2.6GHz band for a price of R1.43 billion.

The additional spectrum is expected to positively impact Rain’s cash flow.

The valuation was further bolstered by a R56 million additional investment into the mobile operator.

ARC lifted the veil slightly on Rain’s finances, saying it achieved its budgeted R1 billion EBITDA (earnings before interest, taxes, depreciation, and amortization) for its fiscal year ending February 2022.

This is considered a significant achievement as it broke-even in the February 2021 financial year.

Rain’s valuation over the years

The table below provides an overview of Rain’s valuation growth between December 2017 and June 2022.

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
December 2020 20.37% R3.493 billion R17.148 billion
June 2021 20.26% R3.314 billion R16.357 billion
December 2021 20.26% R3.372 billion R16.644 billion
June 2022 20.25% R3.635 billion R17.951 billion