Is PSG set to recover its losses? While PSG lost some ground last year, the investment holding group, with stakes in Capitec, Curro Holdings and Zeder, remains a JSE darling.
holding group PSG has boosted its dividend for the year to end February to 300c for the full year, an increase of 50% on the previous year.
The group, with underlying investments in financial services, banking, food and related businesses, private equity and education, saw its recurring headline earnings per share (HEPS) increase by 33% to 787.8c a share. PSG sees this as a more relevant benchmark than normal HEPS as it reflects the sum of its effective interest in each of its underlying investments, which include a 30.7% stake in banking group Capitec, 58.5% in private education group Curro Holdings, and a 33.8% in agriculture-focused investment group Zeder.
PSG CEO Piet Mouton said it is notable that PSG’s growth was achieved “with very little gearing, delivering mostly unlevered returns to shareholders. Where there is gearing in the group, it is in most cases at fixed interest rates. Having low or no gearing gives our underlying investments the ability to react quickly to new opportunities. Further growth is also supported by the fact that the core underlying companies have a relative low market share, leaving them with ample room for growth.”
Capitec, which reported a 26% increase in HEPS in its latest financial year and has a market share of about 2.5% of the South African consumer credit book, remains the group’s largest investment, comprising 39% (2015: 41%) of the total sum-ofthe-parts (SOTP) assets as at 29 February 2016, PSG said. It is also the major contributor to PSG’s recurring headline earnings.
Curro, which currently has a market share of about 0.3% of school-going learners, saw HEPS for the year to end December 2015 jump 67%. Zeder, whose largest investment is a 27.2% stake in Pioneer Foods, increased recurring HEPS by 20% in the year under review, PSG said.
There are a number of reasons investors opt to own shares in investment holding companies, including diversifying their portfolios, good management teams and getting exposure to unlisted companies. Thanks to its exceptional track record of capital allocation and building successful companies, PSG has been a JSE darling. Over the past five years, the share price has increased nearly fivefold, from around R43 to R208.12 at the time of writing.
However, PSG shares still trade at a discount to the R245 it placed shares at in an accelerated bookbuild in December 2015, which saw the investment firm raise R2.2bn. Bids for about R3.9bn were received, substantially above the R1.5bn PSG had hoped to raise.
Possible scenario: PSG lost ground last year – it was correcting from an overextended position. It held firm support at 16 460c/share and is now testing a major resistance level at 21 535c/share. Overcoming that level and returning to the previous uptrend would end the mediumterm correction – potentially extending the current uptrend to the 28 500c/share all-time high in the short term. However, the threeweek relative strength index (RSI) must escape its major bear trend to fuel this upside. Alternative scenario: If PSG encounters major resistance at 21 535c/share, it could construct the final shoulder of a head-andshoulders pattern, which would be confirmed below 16 460c/share. In which case a short position should be initiated below 19 295c/share, with an aggressive implementation below 16 460c/share.