PSG’S discount dilemma
Having a wildly successful investment in Capitec is becoming something of a curse for the Mouton family outfit
ý PSG is facing a growing crescendo of calls from shareholders to unbundle Capitec Bank, a company in which it holds a comparatively modest 30.7% stake but which is by far the most successful investment in its portfolio.
The crux of the matter is PSG’S own sum-of-the-parts valuation, which — according to calculations on its website — values the Capitec stake at just over R50.2bn, or 72% of the group’s total value.
That makes PSG’S stake in Capitec equal in value to its entire market capitalisation of R50.2bn.
The implication of this for embattled PSG shareholders is that the market appears to be entirely discounting the remaining 28% of the Stellenbosch-based
investment group.
“As far as the market is concerned, PSG’S stake in Capitec is worth more than the whole of PSG,” says Anthony Clark, an independent small-caps analyst at Small Talk Daily.
“Capitec should be unbundled. It’s an opportunity to unlock a lot of value for shareholders.”
Piet Viljoen: PSG needs to show it can add value outside Capitec
Clark says PSG is likely to come under scrutiny at its next AGM, scheduled for July 17, as shareholders demand to know how management intends dealing with the discount dilemma.
While unbundling seems the obvious solution to many, not everyone is convinced it will necessarily remedy the situation for PSG shareholders seeking greater value from the group’s
Capitec vs PSG Group – based to 100
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PSG Group
Capitec
remaining assets, the listed portion of which includes
PSG Konsult (60.6%), Curro Holdings (55.4%) and Zeder (43.8%).
“What the market seems to be suggesting is that PSG isn’t creating a lot of value for shareholders and that it should unbundle Capitec,” says Piet Viljoen, executive chair of RECM.
“However, whether that is going to succeed in unlocking value is far from certain.
“What the market really wants is for them to demonstrate that they have the ability to add value outside Capitec. They need to show that they can allocate capital effectively and grow their NAV across all their investments at a reasonable rate.”
Viljoen says he feels PSG’S management team needs to show that it can grow the NAV of its non-capitec assets at least at the same growth rate as the JSE all share index.
“How they do that is up to them but that would seem to be a reasonable proxy,” he says. “So far they haven’t been able to do that with the likes of Zeder and even Curro, of which great things were expected but so far it hasn’t really delivered on the initial promise.”
Another issue that must be gnawing at PSG shareholders — though few will say so unless pressed – is whether the company can navigate the Moutons’ family legacy issues.
It is sometimes said that one should avoid stepping into a great man’s shoes, and this is the dilemma faced by incumbent nonexecutive director Piet Mouton, whose father, Jannie Mouton, founded the company in the mid-1990s.
While Mouton senior remains one of the most successful investors in SA corporate history, his remaining influence at PSG is now uncertain since his revelation, in a 2018 letter to shareholders, that he suffers from short-term memory loss due to a form of early-onset dementia.
“I guess the question on a lot of people’s minds is if Piet has the same eye for a deal as his father,” says Vestact CEO Paul Theron.
“PSG is a vehicle you’d only own if you believe that management has the ability to uncover another great deal like Capitec, which has been an enormous success story.”
Mouton junior declined a request by the FM to discuss the proposed unbundling, indicating that a listed company couldn’t discuss such matters with the media.
Nevertheless, the issue isn’t going away. As long as the market continues discounting PSG’S remaining assets, management is merely holding minority shareholders to ransom.
“The market has effectively given up on the rest of PSG,” says Clark. “PSG is nothing more than Capitec’s proxy. As an investor you’d be better off just buying Capitec.”
Jul