Billionaire Patrice Motsepe’s investment business falls short of targets

South African billionaire, Patrice Motsepe’s African Rainbow Capital (ARC) Investments on Thursday (12 September) published its financial results for the year ended June 2019, showing that it fell well short of expectation, under “strained economic conditions which adversely impacted most of the companies in our portfolio”.

The Intrinsic Net Asset Value (INAV) of the Company increased from R9.12 per share at 30 June 2018 to R9.34 per share at 30 June 2019 which amounts to an increase of 2.4%. “Whilst this is significantly below the medium to long-term expectation of 16% per annum, it reflects the current economic environment.

“The 10% hurdle for the Performance Participation has not been met,” it said in a statement.

Key results

  • Increase of 14.9% in Intrinsic Portfolio Value to R9.36 billion (30 June 2018: R8.15 billion)
  • Net acquisitions of R1.198 billion made in the year under review
  • Cash in the ARC Fund of R725 million (30 June 2018: R1.6 billion)

ARC Investments is majority owned (51.1%) by African Rainbow Capital, which in turn is 100% owned by Ubuntu-Botho Investments.

Dr Johan van Zyl, co-chief executive officer of African Rainbow Capital, said: “Our performance in the period under review has been significantly impacted by a challenging economic and political environment, which hampered the performance of most of the entities in which we are invested.”

ARC Investments increased its Intrinsic Portfolio Value by 14.9% to R9.36 billion and made a number of direct and indirect acquisitions of which the most significant being in the new digital bank, TymeBank as well as the insurance business Rand Mutual Holdings.

While ARC Investments has the stated investment strategy of investing for the longer term, the company had the opportunity to dispose of its 20% shareholding in the agribusiness BKB. ARC Investments acquired the investment for R219 million at listing and sold it in December for R410 million.

Johan van der Merwe, co-chief executive officer of ARC, said: “In a relatively short period of time we have managed to build a focused portfolio of financial and non-financial investments. Our next phase of unlocking value is to focus on the synergistic opportunities that exist between many of the portfolio companies in which we have invested.

“In our experience, many of our portfolio companies have naturally explored joint business opportunities which could be of value to them. If they succeed in deriving value, then certainly ARC Investments will stand to benefit as well. Our objective remains to reward our shareholders with long-term capital growth opportunities.”

The top six investments, measured in terms of its value in the portfolio as at 30 June 2019, are the following:

1. Rain

  • Size of investment in total portfolio: 26.8%
  • The investment value of Rain as at 30 June 2019: R2.509 billion

Rain is aiming to become a full-service Mobile Network Operator, focusing on data as a primary offering. Rain is building a dedicated national LTE Advanced network and infrastructure that will eventually offer the best quality possible and internet speed, at affordable rates.

“The business is well positioned to become a major player in the 5G data market in the near future,” ARC Investments said.

Rain is aiming to become a full-service Mobile Network Operator, focusing on data as a  primary offering. The major assets constitute spectrum licences. “Overall Rain is tracking well  against the timelines to extend its footprint and the development of the business.

Significant progress has been made to further improve on network performance and stability, ARC Investments said.

The ARC Fund investment in Rain increased from R2.14 billion at 30 June 2018 to R2.5 billion at 30 June 2019, mainly as a result of a fair value write-up of R364 million (2018: R366 million).

2. TymeBank

  • Size of investment in total portfolio: 7.2%
  • The indirect investment value of TymeBank as at 30 June 2019: R674 million

ARC Financial Services increased its holding to 100% in TymeBank in November 2018 when it purchased the 90% interest previously held by Commonwealth Bank of Australia. With the introduction of new partners in the bank through a series of capital raises, the 100% controlling interest held by ARC Financial Services reduced to 65.5%.

This equated to an effective ownership interest of 32.8% for the ARC Fund.

TymeBank offers consumers a cost-efficient banking solution that is easy to access and transact. In the period to 30 June 2019, TymeBank acquired 500 000 clients. The bank has a target of on-boarding one million clients by December this year, ARC Investments said.

The bank is signing up between 3,000 and 3,500 customers per day, with about 40% of bank accounts  being active.

3. Alexander Forbes

  • Size of investment in total portfolio: 5.3% at Alexander Forbes Group Holdings level and 3.4% at Alexander Forbes Limited level
  • The indirect investment value of Alexander Forbes Group Holdings as at 30 June 2019: R495 million and Alexander Forbes Limited: R315 million at Alexander Forbes Limited level.

Alexander Forbes is a provider of integrated retirement, investment, life and insurance solutions with the objective of creating, growth and protecting the wealth and assets of their clients.

4. Rand Mutual Holdings (RMH)

  • Size of investment in total portfolio: 3.1%
  • The indirect investment value of RMH as at 30 June 2019: R289 million

RMH has a strong competitive position in the COID (Compensation for Occupational Injuries and Diseases) sector. The business is a subsidiary to Rand Mutual Assurance, which was formed in 1894 and administers workmen’s compensation.

5. Afrimat

  • Size of investment in total portfolio: 7.9%
  • The investment value of Afrimat as at 30 June 2019: R738 million

Afrimat is an open pit mining company and it supplies a broad range of construction materials and industrial minerals to clients. “In the period under review, the business experienced some challenges but managed to recover well with the share price responding favourably, ARC Investments said.

6. GemCap

  • Size of investment in total portfolio: 5.8%
  • The investment value of GemCap as at 30 June 2019: R545 million

GemCap focuses on investments in Business Process Outsourcing and their focus is on industry wide platforms and portal solutions. “They have a good pipeline of investment opportunities,” ARC Investments said.

Read: TymeBank is now one of the fastest-growing digital banks in the world: CEO

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Billionaire Patrice Motsepe’s investment business falls short of targets