Cre­at­ing more than it costs

No rea­son to aban­don the Stel­len­bosch ‘mother ship’

Finweek English Edition - - Insight -

FULL CREDIT TO fi­nan­cial ser­vices group PSG for its con­sid­er­able ef­fort – once again – in de­tail­ing its var­i­ous earn­ings per­mu­ta­tions. There’s some­thing to be said for com­pa­nies de­ter­mined to pro­vide clar­ity about what they do and how much of it they ac­tu­ally do. As a com­pany with a track record of cre­at­ing and un­lock­ing value for share­hold­ers on a reg­u­lar ba­sis, PSG’s re­cur­ring earn­ings of 207c/share (as well as a 42c/share an­nual pay­out) sup­port its cur­rent share price.

Oth­er­wise, some eye­brows may have been lifted at the in­fer­ence its share price of around 2 765c on the JSE stands at a size­able pre­mium to its last stated net as­set value of 1 765c/share. But reck­ons al­though PSG can claim sta­tus as an op­er­at­ing en­tity (or should we rather say an “op­er­a­tor”?) some at­ten­tion still in­evitably must be paid to the un­der­ly­ing value of its in­vest­ments.

Some mar­ket wags may reckon PSG could have rel­e­gated it­self in the “ex­cite­ment stakes” by hav­ing ar­guably its sex­i­est in­vest­ments un­bun­dled and sep­a­rately listed. Those would be (in no par­tic­u­lar or­der) Capitec Bank (see re­port, page 28), Zeder In­vest­ments and Pal­adin Cap­i­tal (which has been deemed PSG’s “pre­ferred” in­vest­ment ve­hi­cle).

Those in­ter­ests rep­re­sent a chunk of PSG’s un­der­ly­ing value. By our cal­cu­la­tion, its Capitec stake is now worth more than R3bn – a level at which some mar­ket par­tic­i­pants may start per­ceiv­ing PSG as a proxy for the mass bank­ing ini­tia­tive. Its Pal­adin stake is worth more than R1bn and Zeder around R900m.

There’s no ev­i­dence to sug­gest in­vestors are cur­rently opt­ing to pick in­di­vid­ual hold­ings in Zeder, Pal­adin or Capitec in­stead of buy­ing into the “mother ship”. But the choice is there: you can buy the parts you like best or take the whole ca­boo­dle.

Some may ar­gue that as a hold­ing com­pany PSG – aside from some at­trac­tive man­age­ment fee ar­range­ments – doesn’t re­ally of­fer too much ex­cite­ment out­side of its un­bun­dled trio. Sure, its main un­listed in­ter­ests re­volve around PSG Wealth Man­age­ment and PSG Kon­sult – op­er­a­tions that, at this stage, don’t hold too much in­trigue for the mar­ket. But PSG – like Rem­gro – is very much a cor­po­rate brand that cre­ates more than it costs. For ex­am­ple, PSG Cap­i­tal – as its lat­est fig­ures show – is no in­signif­i­cant back­room op­er­a­tion. The re­cur­ring earn­ings break­down shows PSG Cor­po­rate – which in­cludes PSG Cap­i­tal – bring­ing R60m to the party in the year to end-Fe­bru­ary. PSG Cor­po­rate is the man­ager to both Zeder and Pal­adin, which means the con­tin­ued suc­cess of both those spe­cial­ist in­vest­ment off­shoots could see fee in­come for­ti­fied markedly. PSG Cap­i­tal has 32 listed and “nu­mer­ous” un­listed clients, which sug­gest fee earn­ings – out­side of PSG-aligned en­ti­ties – could grow ex­po­nen­tially in the year ahead (es­pe­cially if the mar­ket perks up).

Wealth ad­vi­sory ser­vices spe­cial­ist PSG Kon­sult isn’t far off ei­ther Zeder or Pal­adin in terms of its do­na­tion to re­cur­ring earn­ings. But it’s likely to re­main a wall­flower un­til there’s more clar­ity on a pos­si­ble list­ing – which, judg­ing by the body lan­guage of key PSG per­son­nel, is a con­sid­er­a­tion for later rather than sooner.

PSG Fund Man­age­ment, which ar­guably en­joys a higher pro­file than the larger PSG Kon­sult, re­mains the one flat spot for PSG. While mar­ket con­di­tions aren’t con­ducive to sparkling per­for­mances in as­set man­age­ment, you sense some kind of cor­po­rate ac­tion is long over­due on the fund man­age­ment side – most likely a merger into a big­ger en­tity (and prefer­ably one that is listed or can be listed).


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