- African Rainbow Capital is reviewing its portfolio of almost 50 investments.
- It wants to exit some of those, consolidate those it can and isn't planning further acquisitions.
- The company faced some criticism in the past from investors who thought its portfolio was too diversified.
Patrice Motsepe's African Rainbow Capital (ARC) is starting to "prune" its close to 50 investments.
After a busy three years since its listing, characterised by plenty of acquisitions and backing of startups, ARC says investors won't see much of what they've become accustomed to going in the next year and a half.
"The next 18 months, we think, signals a step change ... After a period of sustained growth acquisitions, it is really about pruning and capital allocation to assets that we think have more legs," said ARC co-CEO Johan van Zyl during the company's results presentation on Tuesday.
ARC faced some criticism over the past three years from investors and analysts who thought its portfolio of 47 investments - down from 49 in 2020 - was too diversified. But the company maintained that spreading its investments widely stood it in good stead, especially during the pandemic. Also, four of these investments made up 55% of its portfolio value.
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Exiting Metrofibre and coal mining
Metrofibre is one business that ARC has already decided to let go of. Van Zyl said the group has decided to dispose of its entire stake in the fibre provider but is still waiting for final regulatory approvals.
The group believes that Metrofibre has passed the initial phases of adding value to the group. Van Zyl said it has also matured enough for ARC to sell its stake at a slightly higher price than the carrying value of the business.
"We've had a long and hard think about this asset. It is now becoming mature, and it has much more characteristics of an infrastructure play, requiring much more investment, moving forward," he said.
ARC has also decided to go lighter on mining assets. The company has decided to wind up the mining operations under its ARC Services fund, partly because of ESG concerns around thermal coal mining.
Van Zyl said another factor that led to this decision was that it will take quite substantial additional investments for ARC to be able to mine the available coal deposits.
ARC Services has investments in companies like Stahl Cranes and Hoists, the Mooiplaats Coal Mine and Borwa Mining Instruments.
More consolidation on the cards
Van Zyl said ARC does not only think it will curtail new investments, but it will also have much more consolidation of current investments in its portfolio. It wants to be more conscious about creating synergies between its different businesses, which might mean transferring some of its FinTech companies to TymeBank or the group's other digital companies.
"Really, it's [about] where is the asset better placed. Is it with us? One of our investee companies? Is it with our partners? The real trick here is to see where it can most value going forward," said Van Zyl.
With all this pruning and consolidation, and the fact that its cash-hungry assets like TymeBank and Elandsfontein phosphate mine are expected to turn the corner soon, Van Zyl reckoned that ARC can start making shareholders happy.
"We'll see our portfolio starting to earn dividends. We'll see a range of bigger assets becoming mature or using less capital like TymeBank.
"We had a hard time, to be honest. But we now have partners brought in. We've plugged the holes. We have enough money to really realise the opportunities moving forward," said Van Zyl.
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