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.

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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.

What next?

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.

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