African Rainbow Capital (ARC) published its full-year financial results this week, reporting a 16.3% increase in its intrinsic portfolio value to R12.28-billion. Net fair value gains accounted for R909-million of the increase and net investments for the remaining R810-million.

However, ARC’s intrinsic net asset value per share, a standard valuation measure calculated by subtracting liabilities from assets and dividing by outstanding shares, decreased from R9.54 per share to R8.77 per share. 

ARC put this down to October’s R750-million rights issue, which it executed at a 10% discount to the then share price.

ARC’s share price on the JSE sits at R3.70, down more than 12% year-to-date. The gap in its net asset value and the share price has riled some investors, but the steady growth of its telecoms and fintech investments will likely douse some of those sentiments.     

ARC’s data network operator, Rain, and the app-based TymeBank are the company’s linchpins in an online space that has grown more lucrative and competitive over the Covid-19 period as working, shopping, learning and banking from home have become a necessary norm. 

ARC’s co-chief executive, Dr Johan van Zyl, told Business Maverick this week that the firm wants as much fintech exposure as it can get.

“We have a number of fintech businesses in our current portfolio. These would include businesses like Payprop and Humanstate. Going forward we see significant opportunities to have much exposure to fintech businesses as part of our financial services portfolio, and in particular our banking offering,” said van Zyl. 

TymeBank has registered 3.45 million customers since launching in 2019, and its deal with the Zionist Christian Church in 2020 to onboard a large proportion of the church’s nine million members will likely add to that number, although Covid-19 has proved to be a hurdle.

Internet provider Rain exceeded its subscriber targets in both the 4G and 5G segments, adding more than three million customers since launching in 2019 and putting it in a good position to expand beyond Johannesburg, Pretoria and Cape Town. 

“The company is in a strong growth phase and it seeks to have a presence in all major metropolitan areas in South Africa,” said van Zyl. Key to the growth will be the long-delayed spectrum auction by telecoms regulator Icasa, which, if executed, will give local internet providers the spectrum space needed to hugely expand 5G services. 

ARC, which holds around 28% of Rain, said its share in the value of the investment in Rain increased to R3.31-billion as a result of R56-million additional investment and a fair value gain of R147-million over the year.

ARC has decided to divest from Metrofibre, which it invested in four years ago. The investment is worth around R200-million, but has had weak returns and probably does not fit into ARC’s fintech push. 

“We do not think of Metrofibre as a fintech business. It is an internet fibre business which is now more mature and much more like an infrastructure play. It would require more capital but is likely to deliver a return lower than our internal hurdle rate requirements,” said van Zyl. DM