Motsepe’s ARC rules out share buybacks as discount widens
Johan van der Merwe, joint CEO of Patrice Motsepe’s African Rainbow Capital (ARC), has ruled out share buybacks to shore up the investment holding company’s market value, which is languishing more than threequarters below the value of its underlying assets.
Founded about four years ago by Motsepe, Van der Merwe and co-CEO Johan van Zyl to build a black-controlled conglomerate, ARC has accumulated a number of assets spanning everything from telecoms and fund management to banking and agriculture.
The value of ARC’s portfolio which includes fast-growing internet data-focused operator Rain, app-only bank TymeBank and a stake in pension fund administrator Alexander Forbes — has grown to R9.9bn, dwarfing the company’s market capitalisation of R2.4bn by nearly 76% as of late Thursday afternoon.
“It’s a short-term headache” that will get better once assets such as Rain “start generating cash flows” that everyone can see, Van der Merwe told Business Day. “We are not going to buy back the shares.”
ARC is sitting on a R437m cash pile, which is about 40% lower than a year ago.
Van der Merwe’s headache largely mirrors the dilemma faced by Naspers, whose underlying assets ended up being at times 40% less than the sum of its parts.
Naspers tried to fix that by spinning off its pay-TV business, MultiChoice, and hiving off and separately listing its global e-commerce business, Prosus, in Amsterdam.
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Van der Merwe said part of the reason behind the discount was the size of ARC, which was too small for big-pocketed institutional investors such as Coronation Asset Management, Allan Gray and Ninety One to buy into the company.
He also said investors seemed reluctant to invest in the company due to a lack of granular details of the performance of underlying companies, many of which are in start-up phases and are privately controlled.
He was speaking to Business Day shortly after the company issued its half-year earnings report, which showed that the intrinsic value of its portfolio rose 5.8% to R9.9bn, thanks largely to a nearly one-third
R9.9bn the value of ARC’s portfolio, which includes fast-growing internet data-focused operator Rain, apponly bank TymeBank and a stake in pension fund administrator Alexander Forbes
rise in the valuation of its stake in Rain.
ARC’s 20% stake in Rain valued at R2.7bn represented more than a quarter of its fund value, and the telecommunications business had seen as much as a two-fold increase in the sale of data SIM cards in recent weeks, Van der Merwe said as consumers stayed at home to contain the spread of the novel coronavirus.
Rain’s income sources consist of roaming income, 4G-data sales, 5G subscriptions and reseller income, with ARC saying that it was optimistic regarding its prospects.
ARC was still pencilling in a 2022 break-even for TymeBank, which was launched a year ago to take on established brick-and-mortar banks with ultra-competitive banking fees, which triggered a price war in the middle of 2019, Van der Merwe said.
The bank, which has signed up 1.1-million customers, nearly half of whom are active customers, recently struck a deal with the Zion Christian Church, which has 9-million members in SA, to install its sign-up kiosk at the church headquarters in Moria, Limpopo.