Mobile operator Rain has recently been valued at over US$1,2 billion, which is more than the combined value of its main competitors – Telkom and Cell C.
This valuation was reported in African Rainbow Capital Investment’s (ARCI) interim results for the six months through December 2023. ARCI is an investment holding company with a diversified portfolio of investments aimed at delivering long-term capital growth to investors.
While ARCI’s intrinsic net asset value (INAV) increased by 4.6% to US$854 million, and INAV per share increased by 12.9% to US$0.59, its most significant investment is a 21% stake in Rain, accounting for 27% of its total fund.
Rain’s latest valuation is almost twice as much as Telkom’s current market cap, which has been struggling lately and reported a loss of US$527 million in its last financial year.
In contrast, Rain is said to have turned profitable based on EBITDA, which increased to US$122 million. Rain’s free cash flow is growing, and it is expected to achieve an EBITDA figure of over US$133 million for the year ending February 2024.
However, ARCI has not shared any meaningful information on Rain’s profitability, which has led investors to speculate on its performance.
Investors are questioning the reliability of Rain’s valuation and wonder if the company can justify its valuation with profits. Assuming Rain is as profitable as Vodacom, it would generate a net profit of US$53 million, translating to a P/E ratio of 23 times, significantly higher than that of Vodacom (10.30) and MTN (7.41).
Overall, Rain’s latest valuation is impressive, but investors must wait and see if the company can back it up with profits.
