JSE-listed investment holding company African Rainbow Capital (ARC) Investments said it has experienced steady portfolio growth for the six months to December 31, 2024, with its intrinsic net asset value (INAV) a share having increased by 3.2% to R12.78.

This increase in the INAV is a function of acquisitions of R698-million, disposals of R1.2-billion and a net portfolio gain of R840-million, the company said in its interim results statement.

ARC Fund invested a further R698-million to support its existing portfolio, predominantly in financial services. These transactions included additional investments in Rain, Tyme, ARCH and Kropz.

The ARC Fund’s net fair value gains benefited from an increase of R351-million in the financial services portfolio, driven by gains in Tyme, Alexforbes and Sanlam Third Party Asset Management.

Additionally, from its diversified investment portfolio, fair value gains of R489-million were mainly driven by the growth in the value of Rain, ARC Investments, Blue Spec, Acorn Agri and Linebooker.

“The diverse nature of the ARC Fund portfolio has continued to show resilience against a challenging macroeconomic environment. The difficult environment has also created opportunities that we believe our investment portfolio is ideally positioned to benefit from,” said ARC co-CEO Johan van der Merwe.

The company cited welcome signs of recovery in the business environment, with favourable green shoots indicating a modestly improved economic landscape ahead.

ARC Investments’ investee companies were strategically positioned to capitalise on these developments and are well-placed for growth, he said.

The ARC Fund’s investment portfolio includes a combination of mature, high-growth and early-stage investments.

Further, the growing maturity of the portfolio improves the predictability of earnings, while the predominance of high-growth investments ensures prospects into the future. The unlisted portion of the ARC Fund, which is only accessible through ARC Investments, now comprises 86% of the portfolio.

“We have made excellent progress in the development of early-stage investments in recent years, to the extent that two-thirds of the portfolio now consists of mature and high-growth investments. We have also successfully streamlined the portfolio, with the top ten investments now comprising 85% of the ARC Fund’s value,” Van der Merwe said.

“We are particularly pleased with our efforts to narrow the discount at which the ARC Investments share trades to underlying NAV,” said ARC co-CEO Johan van Zyl.

Portfolio valuations have been validated through several disposals at prices above the last reported fair values, increasing the conviction in the valuations. The company has established a good record of realising synergies and accelerating growth through partner collaboration.

The ARC Fund’s dividend income has also been accelerating, with about R100-million received in this period, relative to R53-million received in the comparable six-month period to the end of December 2023.

ARC Financial Services Investments also received dividends amounting to about R500-million, mainly from Alexforbes.

“These actions have reduced the discount from about 50% in June 2024 to about 30% in December 2024. We will continue collaborating with our partners to realise synergies among portfolio companies.

“We have created an ecosystem of businesses leveraging off each other. We are creating significant value by tapping the large client pools within the ecosystem to launch new products and services, thereby creating win-win opportunities for all,” said Van Zyl.

DELISTING

Meanwhile, as announced in ARC Investments’ Integrated Annual Report of June 30, 2024, the assessment of delisting of ARC Investments is a strategic priority going forward.

In spite of the substantial narrowing of the discount at which ARC Investments’ shares were trading at on the JSE and A2X at end December 2024, it was concluded that the listed structure had largely fulfilled its initial purpose and had now become an impediment to the future growth prospects of the company, ARC Investments said.

Therefore, ARC, together with a special purpose vehicle created specifically for this purpose, made a joint binding conditional cash offer to acquire all of the issued ordinary shares of ARC Investments not already owned by them or their related parties, subject to regulatory and other required approvals, with the objective of delisting the business from the JSE and A2X and also re-domiciling it from Mauritius to South Africa.

The offer is made for a cash consideration of R9.75 a share, which represents a substantial premium over the 30-day volume-weighted average price market price of the ARC Investments’ shares, also taking into account the narrowing of the discount to NAV during the period under review.

The offer and its implementation are dependent on several regulatory approvals and other conditions precedent. These and the planned timetable will also be set out in a combined offer circular that will be published and circulated to shareholders in due course.