Spot the two inflated valuations

Rain and Community Investment Ventures Holdings (CIVH), which owns Vumatel and DFA, have valuations that are out of sync with the rest of the telecommunications market.

In September, African Rainbow Capital Investments (ARC) and Remgro released their latest financial results.

These two diversified investment holding companies have one thing in common—a major presence in South Africa’s telecommunications market.

ARC has a large stake in mobile operator Rain. It is the largest contributor to the fund’s net asset value (NAV).

Rain is South Africa’s fifth mobile operator, competing with Vodacom, MTN, Telkom, and Cell C in the mobile voice and data market.

Rain initially offered only fixed and mobile data products on its own national 4G and 5G networks.

However, it recently started offering voice services as part of its new Rain One and Rain Mobile products and signed a national roaming agreement with Vodacom.

ARC’s 21% stake in Rain is one of its most notable investments, making 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.

Remgro, through CIVH, owns a 57% stake in Maziv, which in turn owns 100% in fibre network operators DFA and Vumatel.

Remgro has increased CIVH’s valuation to R25.42 billion despite the company losing R134 million for the 2024 financial year.

CIVH’s valuation is largely based on Maziv’s enterprise value, which currently stands at R50.98 billion, up from R49.35 billion in 2023.

During the 2024 financial year, Maziv’s debt increased from R18.32 billion in 2023 to R19.50 billion.

Spot the two inflated valuations

Rain and CIVH’s latest valuations raise the question of how they compare to the market caps of listed telecommunications companies.

Rain’s valuation increased by R7 billion – from R17.95 billion to R24.95 billion – over the last eighteen months.

One would have expected ARC to make a big announcement about Rain’s rapid valuation increase, such as huge subscriber growth or a big margin increase.

However, quite the inverse happened. When analysts and journalists asked for numbers, ARC co-CEO Johan van Zyl aggressively dismissed these questions.

He would not provide any information about revenue, profit, capital expenditure, or subscriber numbers.

Remgro provided more information about CIVH’s finances, including revenue, EBITDA (earnings before interest, taxes, depreciation, and amortisation), and earnings.

CIVH group’s revenue increased by 2.3% to R6.35 billion. However, its EBITDA fell by 1.6%, and operating earnings dropped by 15.6%.

CIVH’s headline earnings for the year were in the red, dropping from a profit of R361 million in 2023 to a loss of R134 million – a 137% decrease.

The company explained that this decrease is mainly due to higher finance costs resulting from increased interest rates and higher maintenance and security costs.

The one figure all communications companies provide is EBITDA. This makes it possible to do a price-to-EBITDA ratio comparison.

Rain’s price-to-EBITDA ratio of 9.98 is completely out of sync with the market. It should by much closer to Vodacom’s 4.14 or MTN’s 1.96.

CIVH’s price-to-EBITDA ratio of 5.93 is also much higher than that of its closest competitor, Telkom (1.39).