Burnt fingers prove truisms don’t always come true
Ihave been a contented client of PSG since appointing its Konsult division to manage my retirement assets a few years ago. Indeed, after a chance meeting with the grandee of the firm, Jannie Mouton, at a Sunday Times dinner I have been a fan of most things PSG does.
I admire its wealth management side for not just staying afloat in this dreary economy but actually growing
despite paying me my monthly tip. But I also like the kind of mini-Naspers the group has become, beyond its seismic investment in Capitec.
Keep an eye out for stories by Marc Hasenfuss, who roams the golden boulevards of Bellville to cover PSG offshoots such as Zeder and Curro, plus more fabulous stuff happening under the radar in its seed capital hothouse, PSG Alpha.
Like a lot of loyal customers, I’m an investor too. In January 2015 I used a fair wad of my retrenchment money to load up on PSG Konsult at about R7 a share. Within six months it had shot above R9, but just as quickly sank back.
The share bumbled along for much of 2016, seldom budging much above or below R7. Trade in the company was thin, so big orders would move it in great, unnerving leaps as the bid-ask spread was crossed.
But generally it stayed in equilibrium, reflecting the drab
general investment environment, I suppose.
Then, in an unfamiliar whoop-de-doo moment (considering the plight of my other investments), PSG Konsult bolted from R7 to R11 in the space of two years. I took profits along the way, so the company provided a small investor like me with the ideal vehicle.
Of late, however, something has gone cockeyed. There was some good news a rival large asset manager had taken a stake in PSG Konsult, which in hindsight is what kept the price perky in the latter half of 2018 and early 2019.
But that fillip has been smacked down by a vicious reversal of the way things should be: share buybacks by a company are typically seen by potential investors (and current shareholders) as a positive sign. As such, buybacks which are properly disclosed on Sens, nothing secret about them ought to boost confidence in the company, attract fresh money, and drive up the share price.
That theory didn’t work in the case of PSG Konsult. The picture shown to me on Sharenet every day grew grimmer and grimmer with every Sens announcement: the company has been buying back hundreds of thousands of its shares every week ostensibly for its employees’ share incentive scheme. Yet the JSE price did not respond to that buying pressure; it did the opposite. It reflected something I thought was a lot more malign.
With the price now back in the R7 range, I was moved to ask an expert to enlighten me. Desmond Reilly at Clearwater Portfolio Management (who operates as a PSG Konsult wealth manager) said this: “It appears that due to the selloff in the market, especially in the financials, there seems to have been a big seller in PSG Konsult shares. The share incentive scheme has used this selling pressure to accumulate shares. This seems to have been done in a responsible and controlled manner, as they would prefer to pay market-related prices and not drive up the share price.” Well thanks a lot (I think). Just goes to show that castin-stone investment truisms don’t always come true. Naysayers call share buybacks “financial rigging” to boost earnings per share wasting free cash flow that should rather be invested in building the business. I really wouldn’t venture an opinion, but I know my fingers have been burnt.