A knight in PSG ar­mour

Sev­eral en­ti­ties could be spun off in the short to medium term

Finweek English Edition - - Companies & markets - MARC HASENFUSS march@fin­week.co.za

PSG GROUP, which looks de­ter­mined to un­lock value for share­hold­ers, will be sep­a­rately list­ing an­other off­shoot be­tween Oc­to­ber and Novem­ber. This time it’s the turn of Pal­adin Cap­i­tal, fol­low­ing hard on the heels of the sep­a­rate list­ing of PSG’s agri-in­vestor Zeder late in 2006.

Pal­adin – de­scribed as an in­vest­ment com­pany with a private eq­uity bias – is in­deed an in­trigu­ing cor­po­rate an­i­mal, es­pe­cially since a num­ber of in­vest­ments held within its flanks could eas­ily be taken to the bourse in the short to medium term.

Pal­adin, for the record, refers to a me­dieval knight – which pitches the new group in the rather de­mand­ing role of “cham­pion of a cause”. Hope­fully this means some op­por- tunis­tic joust­ing rather than hav­ing to slay dragons…

An of­fi­cial brief notes that Pal­adin “has no sec­tor-spe­cific fo­cus and in­vests in cash gen­er­at­ing (un­listed) com­pa­nies with strong, in­cen­tivised man­age­ment that have a pas­sion to yield su­pe­rior re­turns for share­hold­ers”. Pal­adin hopes to have “sig­nif­i­cant in­flu­ence” over th­ese in­vest­ments.

The group’s in­ter­ests – which are col­lec­tively val­ued at around R460m and gen­er­ate R23m in af­ter-tax prof­its – are: • a 54% stake in Al­goa In­sur­ance Com­pany, which spe­cialises in sick-leave man­age­ment; a 49% stake in Them­beka (for­merly Arch Eq­uity In­vest­ment Hold­ings), a black-owned and -con­trolled in­vest­ment com­pany now headed by en­tre­pre­neur KK Kombi; • 36% of Axon Ex­change, which op­er­ates

in a joint ven­ture with So­ciété Générale; • 52% of CIC Hold­ings Lim­ited, which owns a group of busi­nesses that op­er­ate within the Fast Mov­ing Con­sumer Goods In­dus­try in south­ern Africa; • 46% of PE-based Iquad Group, which con­sists of a num­ber of spe­cial­ist busi­nesses – in­vest­ment in­cen­tives, trea­sury risk man­age­ment and au­dit ser­vices; • 60% of PSG Cap­i­tal – Cor­po­rate

Fi­nance; • 39% of Precrete-Nozala, which pro­duces

and dis­trib­utes pre­mixed con­crete.

• 30% of PSG Cap­i­tal Quan­ti­ta­tive; • 75% of PSG Prop­er­ties.

Af­ter sis­ter medium Fin24 broke the story ear­lier this month about Pal­adin Cap­i­tal, quite a few read­ers en­quired whether Pal­adin Cap­i­tal was re­ally just PSG re­vis­it­ing PSG In­vest­ment Bank (PSGIB), the in­vest­ment bank­ing and private eq­uity com­pany that was ac­quired by Absa Cor­po­rate and Mer­chant Bank about five years ago.

Pal­adin CEO Pierre Malan says com­par­isons with de­funct PSGIB are off the mark. “We’re not an in­vest­ment bank. We are not in­ter­ested in op­por­tunis­tic plays…it’s about long-term sus­tain­able growth. We want to gen­er­ate an­nu­ity in­come for PSG.”

PSG holds 97,5% of Pal­adin, with man­age­ment hold­ing the re­main­ing 2,5%. Malan reck­ons PSG will di­lute its stake to around 51% at Pal­adin’s list­ing later this year when the group hopes to at­tract an­other R250m to R500m in new cap­i­tal.

Malan says Pal­adin in­tends build­ing its port­fo­lio of in­vest­ments to R1bn by Fe­bru­ary next year, which cer­tainly will sup­port the group’s as­pi­ra­tions to be a player in larger private eq­uity con­sor­tiums.

Some mar­ket watch­ers have ques­tioned the ra­tio­nale for yet an­other sep­a­rate list­ing of a PSG off­shoot, ask­ing whether in­vestors would not still find the listed hold­ing com­pany the best point of en­try to par­tic­i­pate in ven­tures such as Pal­adin, Zeder and even Capitec Bank. Sep­a­rately listed BEE ven­ture Arch Eq­uity (now Them­beka) was delisted af­ter a short and suc­cess­ful run on the JSE’s AltX board.

Pal­adin’s sell­ing point is that it does of­fer strong sus­tain­able cash flows from its un­der­ly­ing in­vest­ments. If things go to plan – and mar­ket sen­ti­ment holds up – Pal­adin could re­al­is­ti­cally out­per­form PSG.

Pal­adin could re­al­is­ti­cally out­per­form PSG. Pierre Malan (left) and Jan­nie Mou­ton, PSG ex­ec­u­tive chair­man

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