The discount between the market value of African Rainbow Capital Investments (ARC) and its underlying net asset value (NAV) per share has widened to 59% after the share price dropped 25% over the past six months.
ARC, which is backed by Patrice Motsepe, invests in start-up businesses that aim to disrupt the status quo in areas such as financial services and telecoms.
Through its ARC Fund it has a 20.3% interest in data-only network operator Rain and is counted among backers of digital bank TymeBank, which has amassed more than 8-million customers since its launch in February 2019. The challenger bank is adding an average of 200,000 customers a month.
However, the market still attaches a low rating to its diversified mix of assets, as reflected in the share price. The shares closed at R4.70 on Monday versus an intrinsic NAV of R11.41 as of June. The fund’s intrinsic NAV stood at R15.3bn in June, more than double ARC Investments’ market capitalisation of R7.2bn.
“I still like the long-term story of ARC. The discount has become more of an irritation than a concern for me. In my view, it’s a market problem rather a management one. It’s become a norm that investment companies trade at a discount to their NAV,” said Graeme Korner, a money manager at Korner Perspective.
“Rain is probably the more interesting one for me because it is partly responsible for driving voice and data costs to affordable levels. It’s disrupting the market and will do well in the future, as will TymeBank. But I think the bigger vision for ARC is to create a large and integrated financial services portfolio.”
Co-CEOs Johan van der Merwe and Johan van Zyl have previously said the board will continue to “consider whether there is value in being listed, should the discount remain excessive”.
Their view was echoed by company chair Mark Olivier, who said the discount is affecting the ability of the ARC Fund to raise capital.
Due to ARC Investments’ share price discount to NAV, the 50 companies that it owns are worth more individually than they are collectively under the holding company’s umbrella. For example, Rain was last valued at R22.2bn and accounted for 27.6% of the ARC Fund portfolio.
Still, the shares of investment holding companies, locally and internationally, typically trade at a substantial discount to NAV when measured on a per share basis.
With Kabelo Khumalo
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