Our opinion on the current state of AIL

African Rainbow Capital (AIL) is a BEE investment company that was formed in 2015 and listed on the JSE in September 2017. Since it was formed, AIL has invested in more than forty listed and unlisted investments in a wide range of industries from telecommunications to mining, construction, energy, property, agriculture, insurance, asset management and banking. ARC Investments is 44.4% effectively owned by African Rainbow Capital Proprietary Limited (ARC), which in turn is 100% owned by Ubuntu-Booth Investments Proprietary Limited (UBI). UBI effectively owns 51.2% of ARC Investments. AIL is thus owned through Ubuntu-Botha Investments by the Motsepe family through their trusts. In the South African context, it has a significant advantage in finding suitable companies in which to invest because it can offer them a solid, reliable BEE shareholder. AIL has benefited from an investment by Sanlam and owns a stake in the Sanlam subsidiary, Santam. The company acquired 100% of TymeDigital which has launched a digital bank in partnership with Pick 'n Pay. It offers digital banking, especially for those who cannot afford normal banking, via their phones, and had the distinction of being the only bank in South Africa not to charge transaction fees. It competes with other new banks in South Africa like Discovery Bank and Bank Zero. AIL has taken a hit on its investment in EOH (which may now be improving) but has done well in most other areas. Roughly half of the AIL portfolio is in what it describes as "early lifestyle stage businesses" such as Tymebank, Rain and Kropz. These investments are seen as disruptive in their sectors, but will take time to mature. It also owns 7% of Afrimat having reduced its stake from 18,4%. If there is a criticism of this investment holding company, it must be its lack of focus. It appears to be invested in a very diverse range of industries without significant synergies or economies of scale. The need of most South African companies to have a stable BEE partner gives it an edge in finding and negotiating good deals, but its lack of focus may eventually become a problem. The share trades at a fraction of its intrinsic NAV. It was 59% of its NAV after falling about 25% in the last six months to 2023. The discount makes it good value and may result in "unbundling" some of that value into the hands of shareholders in due course. The directors have said that they will consider delisting from the JSE if the discount persists because the listing cannot be used to raise further capital at current share prices. On 20th August 2020 ARC announced that it had acquired 25% of Sanlam Investment Holdings (SIH) for R815m. In its results for the year to 30th June 2023 the company reported intrinsic net asset value (INAV) up 13,4% to 1141c per share. The company sold its remaining Afrimat shares for R486m and its RMH holding for R727m. It acquired additional shares in ARC for R664m and Kropz for R833m. The company also reported, "Rain - Successfully launched rainOne mobile service. Kropz Plc - Elandsfontein sold 120 000 tonnes of phosphate in the six months to June 2023. TymeBank and Tyme Global - Successful USD125 million capital raise". On 21st November 2023 the company announced a right issue to raise R742,35m. Shareholders will get 11,06579 new shares for every 100 shares that they hold at a 7,32% discount to the volume-weighted average price on 10th November 2023. In an update on the 3 months to 30th September 2023 the company reported the take-up of RainOne continued steadily during the quarter and Bluespec has experienced significant growth. Kropz has had a difficult quarter with flooding and heavy rains at Elandsfontein. Ooba performed well and consolidation in the Agri portfolio is going well. Tymebank has an "...annual revenue run rate of over R1.8 billion for TymeBank and R100m for GoTyme." The share still trades for much less than half its net asset value (NAV). Technically, the share completed a saucer bottom in the second half of 2020 and is now in a new upward trend. We believe that it will continue to perform well as the economy recovers and Ukraine crisis subsides, but like all commodity shares, it is suffering from the current fall in commodity prices.