A hot number
Valuing telecoms enterprises can be contentious at the best of times. So it’s fortuitous to be able to scan through the African Rainbow Capital (ARC) Investments prelisting documentation as well as the latest Remgro investor presentation.
ARC has a 20% investment in Rain, a “full-service” mobile network operator focusing on data as a primary offering. ARC’S prelisting documentation notes that to date Rain has rolled out more than 1,400 sites and more than 1,500 base stations, and has interconnected all the major metros, spanning over 20 points around SA. It states further that Rain is on track to meet a target of 2,000 sites by the end of 2017; 5,000 by the end of 2018; and 10,000 in the coming years. This infrastructure will eventually facilitate an environment in which open access to the Internet becomes a reality in SA. ARC, which is investing in two tranches, is spending about R1.7bn for a 20% stake. This infers a value of R8.5bn for Rain, which has some way to go before fundamentally justifying this heady valuation.
Remgro holds a 51% stake in Dark Fibre Africa (DFA), which is growing its footprint and profits at a startling pace. DFA managed to grow earnings before interest, tax, depreciation and amortisation in the year to March by 24% to more than R1bn on the back of strong gains in annuity income. Remgro puts the current book value (not replacement value) of the fibre-optic network at more than R6.6bn, and values its equity stake at R4.8bn (2016: R6bn).
That infers a value of about R9.5bn for DFA — though there were rumours earlier this year that the business was up for sale for R12bn.
With these valuations in mind, I will be paying particular attention to the upcoming year-end results from
African Empowerment Equity Investments (AEEI), where hopefully there will be more comprehensive disclosure on the value of its 30% stake in British Telecoms SA (BTSA).
BTSA will be a key component of AEEI’S soon-to-be-listed Ayo technology/telecoms hub, which at last count was tagged with an eyebrow-raising value of R2.2bn. Up to now, a confidentiality agreement has precluded AEEI disclosing too much about BTSA’S performance. The pending listing of Ayo — presumably accompanied by a substantial capital-raising exercise for acquisitions — will require a lot of nitty-gritty financial information on BTSA if the broader investment community is to take notice.
Motoring along
So many companies’ profit engines are sputtering alarmingly as the economy stalls. Expectations for Combined Motor Holdings (CMH), a retailer of new and used vehicles, might not have been terribly optimistic. Yet CMH has delivered a surprisingly revved up trading statement, advising shareholders that headline earnings for the half-year to endaugust should increase by between 5% and 15% to 122c-134c/share. Last year CMH paid an interim dividend that was covered just over two times by earnings. If the same payout policy applies, then shareholders are in line for a sumptuous dividend of about
65c/share. Or will CMH directors — after casting an eye down the road — take a more cautious view, and throw a spanner in the works?
Cash flush
ELB Group has, by my calculations, a net cash holding of about R357m after managing an impressive turnaround in the year to end-june. This cash pile is equivalent to about R12.50/share — and a serious underpin to the company’s net asset value of about R25/share. ELB, though, prefers to stash cash to ensure it can act fast to take up new projects.
It’s a prudent ploy. Still, the final dividend of 50c/share is not stingy.
Then again, with cash generated from operations at R189m or 656c/share there is some justification for ELB to loosen its purse strings.
To my eye, this share, at about R20, looks a reasonably priced risk for longer-term investors.
AEEI’S soonto-be-listed Ayo telecoms hub at last count was tagged with an eyebrowraising value of R2.2bn