ARC Investments’ 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 FundIntrinsic value (Rm)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