Building businesses from the bottom up
Financial services group PSG, which was started with a capital base of only R7m, has grown into a formidable JSE-listed company by investing in winners like Capitec and Curro.
analmost exclusively South African company has become a rarity on the JSE following the chase for offshore exposure by local companies and inward listings of foreign companies over the past few years.
But among the star performers of the JSE over those years is the very much local PSG Group, whose contrary performance reflects its contrary strategy.
The investment group’s success has hinged on it finding and exploiting the gaps in the South African economy. It reflects its opportunism particularly in areas like banking, financial services and education, where there is either dominance and complacency, or lack of affordable options or new initiatives; and it has developed fast-growing, disruptive companies in both sectors.
This was again made clear in its results for the year to February, which show that its “sum-of-the-parts” value a share, at R240.87 on 28 February, was 29% higher than end-February 2016, underpinned by the continued strong growth of upstarts Capitec Bank, private education group Curro and PSG Konsult.
The group increased headline earnings by 50% in an environment where there was no economic growth.
PSG’s exceptional success has been accompanied by an 18% increase in the CEO of PSG, pictured outside the group’s head office in Stellenbosch share price over the past year (and almost 350% over the last five), against the All Share’s pedestrian performance.
“We like to hold on to great assets and if they are potentially better than competitors, we will hold them forever,” says CEO Piet Mouton. “What differentiates us is that we like building businesses from the early stage. There aren’t really companies that do that and the returns when you do get it right are significantly better than buying into mature businesses.”
Capitec, which increased earnings by 18%, continues to expand and added a record 1.3m new clients in the past financial year to bring its client base to 8.6m, 46% of which bank their salaries at Capitec.
It has recently made its first offshore acquisition – paying R300m for 40% of Cyprus-based Cream Finance, a global online lending group providing loan products to people in Poland, Latvia, Georgia, the Czech Republic, Mexico and Denmark.
This does not reflect a divergence from its locally-focused strategy. “This is a R300m investment – it is just a baby step, which is, in my mind, the right way