African Rainbow Capital Investments Limited (JSE: AIL) encountered a challenging year, experiencing a decrease of over 20% in the 11 months leading up to November. Despite unveiling impressive growth in its portfolio’s intrinsic net asset value (INAV) during its annual financial report, a notable 15.8% rise to R15.3Bn and a per-share increase of 13.4% to R11.41, the company struggled to rejuvenate its share price performance. Nonetheless, it reaped benefits from new investments and fair value gains. Notably, its portfolio gained from early-stage ventures like Rain, TymeBank, and Kropz, alongside significant corporate manoeuvres made to rebalance the company’s investments.
There have been concerns about the company’s historical management fees, which have seemingly disadvantaged shareholders. Although the new fee structure initiated a positive shift, reducing the latest full-year management fee from R225M to R98M, worries persist regarding the implications of this structure on shareholders.
On the 1D chart, the bearish momentum is evident in the current downtrend, confirmed by the crossing of the 25-SMA (green line) below the 50-SMA (blue line). While support was found at the demand zone close to R4.89, resistance at R5.21 poses a hurdle to the potential share price recovery.
Failure to cross the resistance at R5.21 could amplify the recent struggles in a continuation of the downtrend. Below the R4.89 level, support is established at R4.74 and R4.63, which could prevent a longer-term contraction. However, if the momentum continues, the last line of support could be at the neckline support at R4.50 as we advance.
Conversely, a push above the R5.21 resistance could trigger a reversal in the current momentum. With the 14-day RSI indicating oversold conditions, such a move is not out of the equation. However, the 25-SMA backs the higher resistance at R5.39, which could prove a challenging hurdle to cross in order to enforce a sustainable bullish run. Should the price clear this level, it could start reversing the prior selloff, making the Fibonacci midpoint at R5.79 a critical level in the longer term.
African Rainbow Capital Investments has endured a challenging year so far, and its share price is showing little sign of recovering from its current downtrend. While the demand zone at R4.89 underpins the upside, strong resistance at R5.21 is preventing a sustainable recovery from the bearish pressure.
Sources: African Rainbow Capital Investments Limited
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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