African Rainbow Capital Investments (ARC Investments), the empowered investment company backed by Patrice Motsepe, has reported a notable rise in the value of its underlying portfolio.
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 16% to R15.3 billion for the period to end-June 2023, while on a per share basis its intrinsic net asset value per share (INAV) rose just over 13% to R11.41 per share.
ARC Investments portfolio includes stakes in TymeBank and its global arm TymeGlobal as well as mobile communications company Rain and Sanlam’s third-party asset management which bought out Absa’s investment management business in December 2022. Over the past financial year the group disposed of its remaining stake in Afrimat for R486 million as well as its Gemcap unit’s stakes in in Payprop and Humanstate, which injected R486m into the ARC Fund.
The group also disposed of Rand Mutual Holdings (RMH) for R727 million while making an additional investment of R664 million investment into TymeBank and Tyme Global to help fund the acquisition of SME lender Retail Capital. ARC Investments also made an additional R833 million capital injection into phosphate miner Kropz Plc.
The group also reported a 25% drop in the ARC Fund’s cash reserves to R500 million as at end-June with total debt rising 51% to about R1.47 billion.
“A tough macro environment put pressure on the economy and consumers and harmed some of our entities’ growth,” ARC Investments said in a statement on Thursday. “ARC Investments’ diverse portfolio has, however, shown remarkable resilience against the persisting challenging macroeconomic environment.”
The group has been in the process of disposing of smaller and non-core assets in its portfolio while also reducing its exposure to listed shares that can be acquired directly in the market while simultaneously growing the weighting of its financial services and fintech investments via bolt-on acquisitions and other corporate dealmaking. This forms part of a deliberate aim to reduce its exposure to sectors such as mining, property and business process outsourcing while expanding into what it calls the “future-focused growth areas” of financial services, telecommunication, agriculture and fintech.
One sticking point for shareholders however has been that ARC Investments listed share price trades at a discount to its book value, something that plagues most investment holding companies.
Despite management efforts to narrow the discount ARC Investments group’s share price of about R6.02 is roughly 47% lower than its reported INAV per share of R11.41 as at end-June. That is actually wider than the 28% discount that prevailed in March when it reported its interim results when its share price was at about R7.14 versus an INAV per share of R9.88 as at end-December.
At the time Co-CEO Johan van Zyl said the group wanted to narrow the discount between its listed market price and its per share book value to between 10% and 20%. ARC Investments has undertaken a number of initiatives to address this so-called discount gap including streamlining its portfolio so that its top 13 investments, which are mainly unlisted and only accessible via the group, now comprise about 88% of its investment portfolio.
The group has also reduced the management fee it charges to oversee its investment portfolio, which has dropped to R98 million for the year to end-June, compared to R225 million.
Shares in ARC, which is valued at just over R8 billion on the JSE, closed with little changed on Thursday, but have lost almost 2% in the year-to-date.