The Rain and TymeBank discount

ARC Investments (ARC) trades at a significant discount to its net asset value (NAV). Discounting Rain and TymeBank may explain this discount.

According to its statements, ARC has an intrinsic net asset value per share of R11.41. However, it currently has a share price of R4.75, translating into a discount to NAV of around 60%.

ARC co-CEO Johan van Zyl previously explained that the market does not put much value on startup businesses like Rain and TymeBank.

These two businesses hold tremendous potential, but because of uncertainty, the market does not value them at the same level as ARC.

Another problem is that new businesses, especially Rain in the telecommunications market, require a lot of capital to grow and mature.

A good illustration of this is ARC’s plan to raise R750 million through a rights offer set to begin on Monday, 4 December 2023.

Most of the money will go towards Rain’s expansion and growth and the continued expansion opportunities at Tyme Bank.

Investors did not like the news, and ARC Investments’ share price dropped to well below the rights offer price of R5.00 per share.

It illustrated that shareholders did not believe the additional investment in Rain and TymeBank would reap great rewards — at least not in the short term.

ARC Investments’ management has been vocal about the trading discount and even suggested they would consider delisting from the JSE if it continues.

“It remains prudent for management and the board to continue to consider whether there is value in being listed, should the discount remain excessive,” Van Zyl said.

Even though ARC Investments is trading at a big discount, investors are not piling into the share. In fact, the inverse is true.

It shows that investors disagree with the valuation ARC put on Rain and TymeBank or don’t have enough information to trust the valuations.

Many investors and analysts may, therefore, value ARC based on its investments where there is less uncertainty.

With this in mind, Daily Investor assessed ARC investments’ intrinsic values, added them together and then subtracted the fund’s debt from this figure.

By calculating the per-share value from this figure, the intrinsic net asset value per share would be obtained.

We then discounted the intrinsic values of Rain and TymeBank to zero to see if the intrinsic net asset value per share comes closer to the current share price.

It revealed that when discounting Rain and TymeBank to zero, it closely reflects the current share price of around R4.75.

ARC Fund Intrinsic value (Rm) Discounted intrinsic value (Rm)
Rain  R4,516  R0.00
Tyme SA Holdings  R2,200  R0.00
Kropz Group  R1,919  R1,919
Alex Forbes  R1,139  R1,139
Tyme Group Africa  R902  R0.00
ARCH Emerging Markets  R620  R620
Fledge Capital  R583  R583
Bluespec  R515  R515
ARC Investments  R508  R508
Capital Legacy  R437  R437
RSA  R373  R373
Sanlam 3rd Party AM  R364  R364
Linebooker  R355  R355
Other  R1,939  R1,939
ARC fund debt (R1,473) (R1,473)
Intrinsic NAV  R14,897  R7,279
NAV per share  R10.99  R5.37

This article was first published by Daily Investor and is reproduced with permission.

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The Rain and TymeBank discount