Would it be considered career limiting if i decide to poke holes at the valuation for Rain??? https://mybroadband.co.za/news/business-telecoms/356407-rains-r13-1-billion-valuation-analysed.html

Its a thread cause am too lazy to write a full article.

For those of you who are not aware @rainSouthAfrica is a mobile only network in South Africa.

Considering some key shareholders and management follow me. I hope yall don't get mad at me too much.

#RainValuation

So some obvious limitations. Rain is privately held and as such doesn't actually disclose financial statements. This makes this a tad tricky..

The only available information is based on public comments from management..

#RainValuation

And Arc.. Ie Africian Rainbow Capital which is publicly listed.

They disclose the methodology and relevant discount rates etc.

Side bar...non finance folk feel free to ask what words mean etc..

#RainValuation

Just overall. Valuation as a concept is one that is extremely subjective and is very dependent on the lense you are looking at.

The rule of thumb is that asset holders will always look to show the most favorable side.. Ie you always wanna look health.

#RainValuation

Arc discloses that they use DCF (discounted cash flow). 8 years with a terminal value.

Discount Rate of 16.5% and 3% Terminal growth rate.

#RainValuation

That seems reasonable on face value. You should note that the reason why a company would use dcf.. Is quite simply the historical earnings are negative.. And there is expectation that the growth in revenue would swing upwards.

#RainValuation

As a Telecom. The key revenue drivers is revenue, subscriber numbers, and growth.

Rain is slightly different in that it also gets a large portion of fixed income related to its data sharing agreement with Vodacom.

full details of this agreement aren't public.

#RainValuation

But based on some small notes in the Vodacom Financials. The estimate is a couple billion.

Rain in Oct 2019,disclosed they had 100 000 subscribers.. And this has been growing quite strongly.

#RainValuation

Even with all the growth. Being the cheapest service provider.

It's an accepted fact that Rain is the worst network,. You will cry blood tires. As early as 2018 Vodacom Ceo said Rain will always have capacity constrains.

#RainValuation

In defence they have tried remedying this with increased expenditure in Capex.. But alas i haven't seen the difference.

Furthermore no lies brand Rain has grown.. Judging by increased marketing spend.

#RainValuation

Getting back to the numbers.

Subscribers numbers in South Africa

Vodacom has 44m subscribers
MTN has 25m subscribes
Cell c has 13.6m
Telekom has 11.5m

#RainValuation

It should be important to note that

Cell C is valued at zero.

Telkom has a market cap of R13 billion.

So Rain is valued at greater than those listed above.

#RainValuation

So on face value the numbers just don't seem aligned in the slightest

The secret is the Vodacom deal and the cash flows associated with that transaction..

High level the partnership is based on usage.

Vodacom data usage has grown 60%(Y/ended 2019).and Lockdown period has almost doubled that.

Relate that to Rains income gives you an indication of the revenue line, base and growth assumptions going forward.

#RainValuation

But even with that nice income booster.

Telecom as a sector is the only one where Capex goes up and costs goes up . But revenue per customer is on a decline.

So this brings in few questions on the operating and capital base of Rain.

#RainValuation

One can make the argument that technology advancement.

Means that you can greatly reduce your operating costs.. Ie you need less..

But the thing you can't runaway from is capital expenditure.. And i take it the bigger guys.. Get the bigger discounts.

#RainValuation

So getting back to this valuation number of R13 billion.

I genuinely don't see it at all.. There are so many questions.. The assumptions are generous.

I have lot more questions than answers..

#RainValuation