African Rainbow Capital Investments (ARC Investments), the empowered investment company founded by Patrice Motsepe, said the performance of several of its portfolio companies had been resilient despite the tough economic conditions in SA.
In a Friday investment update for the third quarter of the group’s 2023 financial year, which covers the three months to end-March 2023, ARC Investments said it also continued to find good investments despite the weak economy and ongoing power cuts. The group, via the ARC Fund, said it also continues to buy its own shares during periods of price weakness as part of a previously announced plan to narrow the discount between its market valuation and its book value.
“The period under review was characterised by a challenging macro-economic environment featuring currency weakness, elevated inflation, rising interest rates and interruption of electricity supply,” ARC Investments said. “GDP growth is sluggish, and business and consumer sentiment remain suppressed. Despite the current economic climate, the performance of several portfolio companies has been resilient, and we continue to identify attractive investment opportunities.”
The JSE-listed investment holding company, the only asset of which is the ARC Fund, said its data provider — Rain — continues to meet its monthly financial targets after expanding its 4G network thanks to its spectrum allocation in the 2022 auction.
This will allow Rain to evolve into a full mobile network operator, offering national voice, SMS and data coverage. The company’s new product, rainOne, combines mobile and fixed-wireless, unlimited data, free monthly calls and data for two phones, as well as an affordable fixed-5G connection.
ARC Investments said it expects a significant number of existing Rain customers to switch to this new mobile offering.
The group, via the ARC Fund, maintained its financial support of Kropz’s Elandsfontein’s operations by extending an additional R285m bridge loan to the mining company in March, though it said the Elandsfontein operation was making progress towards achieving financial independence and profitability.
“Although supply chain issues negatively affected production volumes, significant progress has been made in improving processing stability and run times,” ARC Investments said.
Between December 2022 and March 31 2023, Elandsfontein successfully produced and sold more than 53,000 tonnes of phosphate concentrate. Kropz is also in the process of finalising a new mine plan and feasibility study for a reduced-scale starter project at its Cominco resource, in the Republic of Congo.
ARC Investments said it is currently restructuring its agricultural portfolio to unlock untapped efficiencies and cross-selling opportunities.
“By leveraging off each other's strengths, we believe we can create a more efficient and effective system using the Acorn Agri and Food platform,” the group said.
The group also increased its shareholding in the Upstream Group of Companies from 25% to 49% during the period under review by buying out the stake of an unnamed shareholder that wished to exit the investment. This transaction was concluded in consortium with Fledge Capital, a new shareholder in Upstream, which acquired about 13% of the company as part of the deal.
Upstream is a debt review, rehabilitation and recovery service provider which ARC Investments said is likely to see increased demand for its services due to SA’s tough economic environment.
ARC Investments said its key financial services investment, Tyme, has an annual revenue run rate of over R1.9bn and is adding 300,000 new customers a month across the two markets where it currently operates, namely SA and the Philippines where it operates under the TymeBank and GoTyme brands respectively.
TymeBank has racked up more than 7-million customers since its launch in February 2019, and is currently acquiring about 188,000 new customers a month. The bank registers an average of 23m monthly transactions and has a 30-day account activity rate of 70%.
“The focus remains on profitability in the coming months,” said ARC Investments, adding that GoTyme, which launched was launched in the Philippines in October 2022 in partnership with the Gokongwei Group, is exceeding its business plan targets.
ARC Investments said its Crossfin’s performance was “in line with expectations” despite a difficult consumer environment and the negative impact of load shedding on point-of-sale businesses such as Adumo payments and ikokha.
The group also disclosed that ARC Financial Services Investments (ARC FSI), in which the ARC Fund has a stake, extended a R200m loan to Capital Legacy in April that will either be converted into equity or repaid after 12 months. This follows the February announcement of Sanlam’s acquisition of a 26% stake in Capital Legacy in exchange for the Sanlam Trust business and cash, which will see ARC FSI dilute its stake in to 25% upon conclusion of the deal.
ARC FSI also concluded the sale of its 30% stake in Rand Mutual Holdings in January for a consideration above both the underlying embedded value and the carrying value at end-June 2022.
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