- ARC Investments said on Thursday upward valuations for telecoms group Rain, as well as its financial services businesses, boosted it in its half-year to end December.
- Both Rain and TymeBank, which make up more than half of its portfolio, are now on a path of increasing profitability, it said.
- But its shares are still trading at a hefty discount, with the group expressing disappointment in this, and it’s buying back its own shares.
African Rainbow Capital Investments (ARC Investments), the empowered investment company backed by Patrice Motsepe, said it got a boost from its two largest investees, Rain and TymeBank. It’s hopeful their imminent profitability will help it tackle persistent and hefty discount at which its share trade.
The JSE-listed investment holding company, the only asset of which is the ARC Fund, said the intrinsic net asset value (INAV) of its portfolio increased by almost 4.6% to R16 billion to end December, rising 12.9% to R11.15 on a per share basis. Over the six months, however, the latter fell 2%.
Though its shares jumped 13.4% to R4.23 on Thursday afternoon, it is still trading at a more than 60% discount. ARC was in the market buying back shares on Thursday as well, however, though it added it’s not simply trying to drive the share price up, but rather seeing value in doing so.
Valued at about R6.4 billion on the JSE, ARC Investments portfolio includes stakes in TymeBank and its global arm TymeGlobal, as well as mobile communications company Rain. It also holds stakes in Alexander Forbes, Sanlam’s third-party asset management, as well as Capital Legacy, one of SA’s largest estate administrators.
Net fair value gains amounted to R784 million in the first half, the main driver being an increase from the financial services portfolio, in part due to the impact of TymeBank reaching breakeven point in December 2023.
Tyme Group, 20.3% of the fund, saw its customers grow 37% to 8.5 million year on year, with ARC adding it is seeing growing activity per customer while the cost base remained relatively stable.
Tymebank achieved breakeven in December 2023, and sustained profitability should be achieved in the next few months.
Rain, 27% of its fund value, saw a positive revaluation of R222 million, with that company progressing past the significant net cash outflow point and the subsequent launch of rainOne. The performance of rainOne in the current period has been pleasing and customer growth is encouraging, it said.
Rain is expecting to achieve adjusted core profit in excess of R2 billion for the year ending February 2024, with co-CEO Johan van Zyl saying during an investor presentation the group was seeing high demand for 4G and 5G products, as well as rainOne, which combines a fixed wireless and mobile offering.
“What I really think is telling is this service, of doing many things, creates opportunities to increase retention,” he said, adding:
It’s also much better than the single-type products in getting our accounts paid at the end of the month by the various clients.
Additional investment in Rain and Tyme Group amounted to R81 million and R76 million respectively. Additional capital advanced to phosphate miner Kropz amounted to R379 million, though this business contributed a R295 million negative valuation. The group said this was due to pushing back expectations of probability, but it still sees value in the stake, hence the extra capital.
Another business to reach breakeven was Linebooker, South Africa’s largest online freight platform, which makes up about 2% of the fund.
Speaking during an investor presentation, co-CEO Johan van der Merwe said the group had made progress in repositioning itself, including through more focused investment portfolio, which is still diversified, lower fees, as well as a large proportion of unlisted counters not accessible to the market.
“It doesn’t seem as if the market is really seeing the value proposition that we are bringing to the market, looking at the share price and the discount,” he said. He added ARC increasing number of late-stage start-ups should help narrow the gap.
Van Zyl added the group would press ahead with its plans to narrow the discount, including through buybacks, with the group still viewing ARC as one of the best investments out there due to it.
