Vumatel and DFA worth far more than Telkom

Remgro’s latest results revealed that Maziv, which owns Vumatel and DFA, has a significantly higher valuation than Telkom’s market cap.

Remgro released its audited results for the year ended 30 June 2023, which included details about Community Investment Ventures Holdings (CIVH), in which Remgro has a 57.03% interest.

CIVH owns Dark Fibre Africa (DFA) and Vumatel, which operates under the recently launched Maziv brand.

CIVH’s contribution to Remgro’s headline earnings amounted to R206 million, a 338% increase over the R47 million contribution last year.

The increase was mainly due to the improved performances by DFA and Vumatel.

DFA’s revenue increased by 6.8% to R2.653 billion, while its annuity income increased to R213 million per month.

Vumatel’s revenue increased by 15.1% to R3.432 billion, driven by its fibre infrastructure expansion program and subscriber uptake growth.

The higher revenue helped to bolster CIVH’s earnings before interest, taxes, depreciation and amortisation (EBITDA) by 19.7% to R4.36 billion.

The two fibre network operators’ improved financial performance helped increase Maziv’s valuation to R31 billion.

Maziv versus Telkom

It is interesting that Maziv’s valuation of R31 billion is now more than double Telkom’s market cap of R12.3 billion.

Although Telkom has significantly more assets than Maziv, the market has lost trust in the telecommunications company.

Telkom’s share price plummeted over the last year on the back of poor results and no concrete plan to turn things around.

The group’s revenue remained flat at R43.14 billion, but net income fell by 84.7% – from R2.6 billion in 2022 to R346 million in 2023.

Telkom also realised a significant impairment loss on two cash-generating units, Openserve and Telkom Consumer.

The total impairment loss amounted to R13 billion, which brings the company’s net loss for the year to R9.97 billion.

Telkom’s share price declined by 50% over the last year, which saw its market cap shrink to under R12 billion.

So, although Telkom has incredibly valuable assets, its debt burden and operational inefficiency are dragging the company down.

CIVH and Vodacom transaction

Remgro announced that it remains committed to partnering with Vodacom to bolster its CIVH fibre operations.

Vodacom will, through a combination of assets of R4.2 billion and cash of at least R6.0 billion, acquire up to 40% of CIVH subsidiary Maziv.

As a result of the proposed transaction, Remgro’s indirect interest in DFA and Vumatel will dilute with the entrance of Vodacom as a shareholder.

However, Remgro will also obtain an indirect interest in the fibre assets contributed by Vodacom.

In August 2023, The Competition Commission announced its non-binding recommendation to the Competition Tribunal to prohibit the proposed transaction.

Remgro and CIVH said they remain committed to the proposed transaction despite the Competition Commission’s recommendation.

“We firmly believe that the transaction will deliver significant benefits to South African consumers and the broader economy,” Remgro said.