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.

Finweek English Edition - - ON THE MONEY -

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.

Growth strat­egy

“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

Piet Mouton

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