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Remgro, the largest The shareholder of CIVH, the parent company of Vumatel and Dark Fiber Africa, has attached a valuation of R19.3 billion to the telecom infrastructure holding company.
The implicit valuation gives CIVH a significantly higher intrinsic value than Telkom’s market capitalization. However, overall losses have increased, the group said in its interim financial results for the six months to the end of June.
CIVH’s contribution to Remgro’s overall earnings amounted to a loss of R649 million (2019: loss of R204 million), largely driven by one-time costs.
Significantly, CIVH contributed R608 million in operating profit (earnings before interest and taxes), 150.2% more than R243 million a year ago. CIVH’s revenue contribution was R3.7 billion, a solid 57.7% more than a year ago.
“The decrease (in overall earnings) is primarily due to significant transaction and financing costs incurred in connection with the acquisition of an additional 65.1% stake in Vumatel during May 2019, as well as additional losses (10 months ) accounted for by Vumatel due to the acquired interest ”, explained Remgro.
Remgro issued a guarantee to Rand Merchant Bank for a line of credit, which was granted to CIVH to finance the acquisition of Vumatel. Remgro’s exposure related to this as of June 30, 2020 amounted to R3.3 billion.
Annuity income
“CIVH’s results were also negatively affected by the prudent credit provision due to the uncertainties created by the Covid-19 pandemic. Despite increased losses, Dark Fiber Africa’s revenue increased 5% as its annuity income increased to more than R179 million / month as of March 31, 2020 (March 31, 2019: R159 million) ” .
DFA’s contribution was adversely affected by higher depreciation and financial costs due to the expansion of its fiber network.
Vumatel’s contribution to revenue increased by 80% to R1.5 billion compared to the previous year, driven by strong growth in fiber to home subscribers. However, its results were also negatively affected by higher depreciation and financial costs driven by the expanding network.
Remgro said its 54.7% stake in CIVH had an intrinsic value of R10.6 billion (and a book value of R4.5 billion) at the end of the reporting period in June. This was higher than R8.4 billion for CIVH as of June 30, 2019.
Telkom, which is listed on JSE, South Africa’s former monopoly telecoms operator, by contrast, had a market value of R11.8 billion at the time of writing. That means Remgro believes CIVH was worth 65% more than Telkom at the end of June than the value investors currently attribute to the former state operator.
During fiscal year 2019, Remgro advanced a loan of R100 million to CIVH and earned underwriting fees of R58 million on a CIVH rights issue. The loan and the outstanding amount of the subscription fee would be converted into CIVH shares. On March 31, 2020, Remgro invested another R167 million in CIVH in exchange for the loan and outstanding underwriting fee, which marginally increased Remgro’s stake in CIVH to 54.7%, from 54.4% previously. – © 2020 NewsCentral Media
