Creating more than it costs
No reason to abandon the Stellenbosch ‘mother ship’
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).