Investment company African Rainbow Capital (ARC) on Tuesday released its maiden interim financial results for the six months ended December 31 and reported an increase in its share price to R8.79 before dilution (R8.75 after dilution) as at December 31, from R8.46 at its JSE listing in September.
ARC also reported a 3.9% increase in its intrinsic net asset value (INAV) to R9.07-billion – comprising an intrinsic portfolio value (IPV) of R7.08-billion, and cash and other net assets of R1.98-billion – compared with September’s INAV of R8.7-billion, which comprised an IPV of R4.4-billion, and cash and other net assets of R4.2-billion.
During the reporting period, the ARC Fund invested an additional R2.3-billion. Since ARC’s establishment in 2015, R7-billion has been invested into expanding the portfolio of companies it is invested in.
ARC executive director Machiel Reyneke said for the 115 days reporting period, the annualised net return (after fees but before performance participation) on the IPV was 14.8% and the company targets having a 16% return on a yearly basis by the next reporting period.
The company pointed out that the sluggish economy in the reported period has negatively impacted some of the ARC Fund’s portfolio companies as they have traded in a slowed economy, low investor and business confidence, political uncertainty, increasing commodity prices and increasing fuel prices.
“These unfavourable economic conditions have negatively affected the performance of some of the investments. It is expected that these investments will show improved performance, owing to the improved political landscape and revised economic outlook for the country in the medium term,” reported ARC co-CEO Johan van der Merwe.
INVESTMENT STRUCTURE
ARC has made more than 40 investments in portfolio companies since 2015 to the date of transfer to ARC Investments by following a deliberate building block approach. ARC has acquired interests in businesses in specific financial and nonfinancial industries – with the objective and firm belief that empowerment would enhance the competitiveness of the business.
ARC’s business structure comprises diversified investments into segments including telecommunications (28% of IPV); business process outsourcing (17%); mining, construction and energy (17%); property (6%); agriculture (10%); and other (3%). The company’s diversified financial services include insurance and asset management, banking and specialised financial services.
ARC’s biggest asset is a 20% interest in telecoms company Rain, which owns the spectrum licence allocated between 1 800 MHz and 2 600 MHz band. Rain is responsible for the expansion of the network – providing wireless connectivity – and roaming agreements with other major telecoms companies.
For example, Rain is currently in a contract with telecoms provider Vodacom to roll out equipment on 5 000 Vodacom towers – with the roll out at 2 000 towers completed in February.
“Rain intends to build a dedicated national long-term evolution advanced network and infrastructure that will eventually facilitate an environment where open access to the Internet becomes a reality in South Africa, with the best possible quality and Internet speed, at affordable rates,” stated ARC co-CEO Johan van Zyl.
Further, Van der Merwe concluded that ARC welcomes the positive developments – the favourable change in the political dynamic – in South Africa and anticipates a healthy pipeline of potential investments in the year ahead.