As the recent Steinhoff / Christo Wiese experience has shown us, directors buying shares in a business isn’t a fool-proof factor to consider when investing …. But it is always an interesting way to scan for potential investment opportunities and trends.
One which has popped up on the radar recently is African Rainbow Capital Investments Limited (JSE Sharecode: AIL) which has seen directors regularly buying since the release of interim results released in March 2018.
Background on AIL
As a reminder, AIL was listed in mid 2017 with the intention of providing investors with the opportunity to invest alongside billionaire Patrice Motsepe.
Although it comes with a complicated structure – and arguably an even more complicated financial reporting environment – it could be described as a modern equivalent of the Rupert developed Remgro.
Its assets include:
- Telecommunications investments in Rain and Metrofibre Networx
- Diversified industrials including Afrigem, BlueSpec, Autoboys Humanstate
- “Speculative” investments in EOH and Capital Appreciation
- Mining, Construction and Energy including the “Last Mile Fund” run by Sipho Nkosi and Bernard Swanepoel and shares in JSE-listed Afrimat and Global Asset Management
- Agriculture: Acorn Agri, BKB Limited, RSA and SubTropico
- Financial Services including stakes in Alexander Forbes, Indwe, AfroCentric, A2X, Bravura, Ooba, Colourfield and EBS International
- Banking: TymeDigital
With less than a full trading year behind it, the metrics associated with AIL are not particularly transparent but for a high-level overview:
- The share is presently trading at R6.30
- The intrinsic Net Asset Value (iNAV) in December 2017 was R9bn with R7bn of investments and R2bn to invest
- iNAV is R8.75/share
- Since listing, the share has dropped 24%
The share presently trades at roughly 40% discount to its reported Net Asset Value. For more established holding businesses, this is normally closer to a 20 – 30% discount depending on transparency of underlying asset valuations.
In March, the company reported interim financial results for the period ended 31 December 2017. Directors have subsequently entered the market acquiring:
- 15m worth of shares at an average price of R6.25 – reported on 20 March 2018
- 4m worth of shares at an average price of R6.22 – reported on 16 April 2018
- 49m worth of shares at an average price of R6.46 – reported on 17 April 2018
The majority of these dealings were conducted on behalf of Sanlam and ARC heavyweight Johan van Zyl and his family and are small in the context of a business with a R6bn market capitalisation. However it is an interesting trend to keep an eye on.