Empowered investment group African Rainbow Capital raised its annual intrinsic net asset value by 21.5 per cent to R18.6 billion, thanks to a strong showing from its investments in Rain and Tymebank. Despite this increase, ARC still trades at a steep discount to its market value. CNBC Africa is joined by Johan van der Merwe, co-CEO, African Rainbow Capital for more.
Empowerment investment group African Rainbow Capital raising its annual intrinsic net asset value by 21.5 per cent to R18.6 billion, thanks to a strong showing from its investments in Rain and Tymebank. Despite this, ARC still trades at a steep discount to its market value. I'm now joined by Johan van der Merwe, co-CEO, African Rainbow Capital for more, who's dressed like me, or who I'm dressed like, and I just mention it because the viewers might think, did we plan it? No, we didn't plan it. It was an absolute coincidence, but you look good, sir. Great sense of style. Jokes aside, I see Tymebank continuing to perform well for the group, Rain also continuing to be a standout performer, and even your logistics platform, Linbrook, as it were. So as you reflect on the year that was, Johan, can investors continue to expect the momentum that has driven the strong performance in some of these investee companies to follow through in the year ahead, or do you see risks on the radar that could prevent the growth from repeating itself? Good evening, Kifi. Always nice to catch up with you. Nice to have the same shirt. So, you know, I think these results were actually achieved within quite a tough operating environment, and we actually look more positive into the next year than what we had in the past. So we don't see any specific headwinds at this point in time. We got these set of results, you know, with some adverse impact on consumer spending, especially because of high inflation, and also, you know, high interest rates. The currency was quite volatile, and the market didn't do well. You know, the JCE did about 5%, or just under 5% in the same period. If one looks at Rain and Tymebank, those are our two largest investments in our portfolio. In fact, they make up almost 50% of the entire portfolio at this point in time, and we're very happy with both investments. Obviously, you know, Rain is valued on a discounted cash flow basis, so we look at the future, what the cash flows are. Obviously, the auditors really look at it very closely, and then we discount it back at a certain discount rate, which is quite a high discount rate. So the increase in the value was really just the unwinding of the discount rate, to be honest. Whereas Tymebank, we value on the latest price at which we raised outside money from. And, you know, it is quite heartening to see that investors really want to buy into Tymebank. They really like the story that we have in South Africa, that we've been able to get a digital bank to break even and turn profitable on a monthly basis now. And obviously, the expansion into Southeast Asia, in the Philippines, where everything is actually happening in less than half the time than in South Africa. Obviously, we learned some lessons in South Africa, and we obviously applied those there. And we've seen where we should actually focus our attention. And in the Philippines, you know, within 18 months, we got more than three and a half million customers over there. They're going through a much quicker J curve than in South Africa. So all things are looking good. You're also looking going into Vietnam, and then after Indonesia. And those countries are massive, you know, Philippines got 110 million people, and Vietnam also about 100 million people. And I think Indonesia has got something like 270 million people. So if one gets it right over there, it can be much bigger than South Africa at the end of the day. Sure. What about your other investing companies, Johan? Are you happy with their performance? Did they meet your expectations? On which one? Sorry, is that? The rest of your investment portfolio. I mean, you were talking about the fact that Time Bank and REN constitute around 50% of the portfolio. As for the rest, are you happy? I mean, the likes of Alex Forbes, for instance, also throwing in that hat. Are you pleased with how they have performed? It's quite a diverse portfolio. And it showed actually very remarkable resilience during, you know, tough, tough periods, and in some cases, you know, grown much quicker than say the economy or inflation in real terms. So we're quite happy there. The one area that we've been struggling for quite a while is with our phosphate mine in the West Coast. But I must say we see quite a bit of green sprouts over there in the sense that we on a reasonably consistent basis now are managing to produce about 1000 tons a day, which is 30,000 tons a month. The price is still quite good. You know, we believe that food security is very important in the world, and that the price will remain quite resilient over there as well. We want to move the production from 30 to about 45,000 tons a month. And that will make it a very profitable operation. We are talking to partners now, seeing that we've reached this stage now. You know, we're not really miners. And we take it quite badly if, you know, if the production goes a bit down, and if we encounter some problems there, but the miners, you know, they used to these type of things, and they know how to sort out problems. So the ones that are looking at this at this point in time, they don't see any problems with it. And from a technical point of view, they are very, very happy with the with the mine with the plant, and everything that they see. So hopefully we can sort that out as well. And then on some of the smaller ones, like a line booker, and where we've got now 25,000 trucks on our platform, and you know, really disrupting that market out there. And we've got two new international clients out there that will more than double, you know, the loads of line booker in the next year. And we're seeing, you know, from a startup a few years ago, you know, for the next year on the on the existing run rate, they're going to make between 50 and 60 million in profit. So quite nice to see that, you know, total startups can really turn profitable quite quickly. It's not uncommon for investment holding companies to trade at a discount to what the market values them. We've seen it, it's an old age phenomena, I suppose. And we've seen quite a lot of football work that goes into trying to narrow the discount, which you have done. Are you happy with the discount right now? Or could there be more moves forthcoming from the group in the year under review? So we're not happy with it. But you know, at the end of the day, the market is, as they say, never wrong. I think it's to do with the fact that we've had quite a diverse portfolio. Now, I think it's much more focused. So I hope the market gives us a little bit of credit there. You know, obviously, we've had quite a number of divestments as well, not once have we sold something for less than the net asset value. So the fact that we're trading at a 40 to 50% discount in net asset value, the market must be thinking that, you know, it's not worth that, but if they see that we time and time again sell at the net asset value, then maybe they will see that you don't need to put such a high discount in it. And I think lastly, we had quite a number of early stage investments. And some of those early stage investments, you know, like the time banks, like the reins and line bookers, you know, they're coming into profitability now, I think some of them will start paying dividends not in the too distant future. And I think the market will then look at us a little bit differently and say, okay, the cash generation is there, the dividends are coming out from these early stage investments. So we're going to narrow the discount a little bit. But let's see how it turns out. At the end of the day, you know, we try to put the score on the board and hopefully the market will, you know, support us and reward us in that way. So talking about the future, rumour has it your future could include Canal Plus, who are in need of an empowerment partner should their deal to buy out multi choice actually go ahead. Any comment there? Yes, you know, we're an empowerment partner. I think, you know, it's a reality in South Africa, people want, you know, good empowerment partners with credibility with money that can put in some skin in the game. And we're one of them. So there are various parties that talk to us. And, you know, I wasn't, you know, personally involved in those discussions. But I know that between Johan van Zyl and Patrice Mutsuipe, they were definitely involved in some of those discussions. But I think it's early days, there are quite a few other hurdles that they will have to overcome in terms of the competition commission, etc. So let's see how that goes, you know, but you know, we previously had discussions with other international players like Coca Cola, and so on. And some of these deals will happen, others won't happen. But, you know, it's important to kiss many frogs in order to find the princess. I'm in that process. There's a lot of frogs, Johan, but I get your point completely. We'll leave it there for now, sir. And hopefully we can talk on the other side of what could potentially be a fruitful transaction for you. Also noting the fact that you've got your eyes set in other parts of the world, hands definitely full with the expansion of TimeBank. But Johan van der Merwe, the co-CEO at African Rainbow Capital there.
Theme: African Rainbow Capital's strong financial performance and strategic investments have propelled its intrinsic net asset value, signaling growth opportunities and potential partnerships in the global market.
African Rainbow Capital (ARC), an empowerment investment group, has reported a significant increase in its annual intrinsic net asset value, rising by 21.5% to R18.6 billion. The impressive growth was largely driven by the strong performance of its key investments in Rain and Tymebank. Despite this remarkable achievement, ARC continues to trade at a notable discount to its market value, sparking discussions on its future moves to narrow this gap. Johan van der Merwe, co-CEO of African Rainbow Capital, discussed the company's performance and future outlook in a recent CNBC Africa interview. Reflecting on the past year, van der Merwe expressed confidence in maintaining momentum in the face of challenges and uncertainties, emphasizing the positive prospects looking ahead. The co-CEO highlighted the standout performances of Rain and Tymebank, which collectively make up almost half of ARC's portfolio. Tymebank's success in breaking even and turning profitable on a monthly basis in South Africa, as well as its expansion into Southeast Asia, particularly in the Philippines, has drawn significant investor interest. With plans to venture into Vietnam and Indonesia, van der Merwe underscored the potential for substantial growth in these markets. As for other companies in ARC's investment portfolio, van der Merwe noted satisfactory performance and resilience amid tough economic conditions. The co-CEO discussed progress in the phosphate mining sector, indicating positive developments and future profitability prospects. Van der Merwe also highlighted the success of Linbrook, the logistics platform, which has seen substantial growth and is poised for further expansion with new international clients. Despite the strong performance of its investee companies, ARC continues to trade at a discount to its net asset value. Van der Merwe acknowledged the market perception and outlined efforts to narrow the discount through focused portfolio management and profitable ventures. He expressed optimism that as early-stage investments mature and generate cash flow, the market perception of ARC would improve. Van der Merwe addressed rumors of potential partnerships, including with Canal Plus, should their deal to acquire multichoice materialize. ARC's role as an empowerment partner with credibility and financial strength positions it well for such opportunities. While acknowledging ongoing discussions, van der Merwe recognized the hurdles involved in finalizing such deals and remained cautious about the outcomes. The interview also touched upon ARC's global aspirations and its commitment to exploring opportunities in various regions. The co-CEO's candid responses shed light on ARC's strategic direction and its proactive approach to unlocking value for investors. As the company continues to navigate the market dynamics and pursue growth opportunities, stakeholders await further developments and potential value accretive deals on the horizon.
"As early-stage investments mature and generate cash flow, the market perception of ARC would improve. We try to put the score on the board and hopefully the market will support us and reward us in that way. - Johan van der Merwe, co-CEO, African Rainbow Capital"
['African Rainbow Capital', 'investment group', 'net asset value', 'Rain', 'Tymebank', 'portfolio', 'financial performance', 'global expansion', 'empowerment partner']