How Jannie Mouton built an R80bn empire in 17 years

At 66 the ‘Boere Buffett’ is proud of PSG’S track record of profitable investments

JANNIE Mouton is always proud to say that the R100 000 invested in PSG Group on formation 17 years ago would have grown to R130-million, compared with R2.2-million if invested in the All Share index.

“In my memory no other company achieved that in this period,’’ says Mouton.

It reflects a remarkable 52% growth a year in the share price, to say nothing of some of PSG’s underlying companies that have also done rather well: low-income lender Capitec, for example, had notched up more than 60% returns a year for 10 years when it won the Sunday Times Top 100 Companies award for 2012. PSG was second, having won it in 2005.

Mouton — famously fired at age 48 from a company he founded — has created billions of rands of wealth for shareholders.

The total market valuation of all 30 companies PSG owns, or in which it has influence, is now R80-billion. These companies employ about 40 000 people.

Here’s an example of how Mouton goes about creating value. In 2009, PSG saw an opportunity to invest in private education by paying R50-million for a 50% stake in private school company Curro Holdings. Curro soon listed on the JSE, with PSG supporting two rights issues. Today, Curro is one of the JSE’s star performers, with a market capitalisation of R5.3-billion.

The investment acumen of the “Boere Buffett”, as Mouton has been called, was replicated in investments such as food group Zeder and black-empowerment company Thembeka Capital, where PSG created R1-billion in wealth for BEE shareholders in less than seven years.

The group continues to look for investment opportunities in areas that others ignore, and seems set for a windfall in the next few years in areas like private education, food in Africa and energy efficiency.

However, some pundits are not sure about PSG’s investment proposition right now, pointing to the near-collapse of the unsecured lending market, which has tempered the rise of PSG’s former star performer Capitec. However, a Business Times analysis shows that PSG’s shares are trading at a 15% discount to the value of its underlying assets, including Curro, Zeder and Capitec.

While the shares of many investment companies like Remgro trade at a discount to actual assets, this discount has increased at PSG over the past two years to 15.1% from 7.7%. At some stage, this discount is like- ly to close again, which will benefit patient investors who buy Mouton’s growth story.

So how has Mouton grown PSG, an investment holding company, from R7-million in market capitalisation when he took control of PAG in 1995 to its current R14-billion? (It’s even more — R28-billion — if you include Capitec, which was unbundled in 2003.)

Mouton’s recipe seems to be a combination of four factors.

Entrepreneurship: The roots of PSG are forming companies and growing them. At some point, Mouton had built a broadbased financial services group — banking, insurance and assetmanagement/securities — but lost part of these financial assets during the crisis among smaller banks in 2002 that ultimately felled Saambou. But others survived, like PSG Kon- sult, the wealth management company which he started almost from scratch that is now worth R4.1-billion.

Undervaluation: Mouton has turned out to be a master at ferreting out undervalued investments and later selling them for a chunky profit. PSG bought “rights” to the JSE, which would later convert into shares. When the JSE listed on its own exchange, Mouton sold his investment in the bourse, making a R600-million profit.

Arbitrage: Mouton has made big profits by taking advantage of mispricing in the market. He has often issued new shares when PSG stock is trading at a high and then bought them back when the stock was undervalued, locking in profits. He has even taken on new debt, aware that he’d make big returns.

Growth and consolidation: this is really the factor that has sparked PSG growth over the years.

In many ways PSG resembles a “listed” private equity company. It raises capital, makes investments, adds value to these

I would say 80% of our investments we conceptualised ourselves

companies and then sells them.

Raising capital has not been a problem for Mouton. Capital is PSG’s lifeblood, and the Stellenbosch “Buffett’’ is an old hand at this, given his networks with institutional investors.

Traditional holders of stock in his companies have been Rand Merchant Bank — which lent him the initial R3.5-million that enabled him to take 51% control of PAG — Old Mutual, Sanlam and Coronation. But his funders include his rich friends and, lately, the state-owned Public Investment Corporation. How does he find the gems? “I would say 80% of our investments we conceptualised ourselves and executed with self-belief and determination. However, we do meet a lot of people with proposals, and in general we adopt one in 20 ideas. We look for outstanding opportunities,” he said.

“Take Curro Holdings. As friends we always talked about the value of a good education and one day we decided to actually do something about it. We came across Curro. From three schools it now has 26 schools and 21 000 learners.”

Capitec was a similar story. Mouton: says “We were inspired by Mohammed Yunus, who founded Grameen Bank to service the unbanked population of Bangladesh. We applied a similar model in South Africa, and it worked spectacularly — though it was tough at the beginning. We had to withdraw clients’ cash at ATMs at midnight to ensure our loans got paid.”

However, numerous investments have come through entrepreneurs themselves approaching PSG for investment — including agricultural seed maker Zaad and energysaver Energy Partners, which now sits in PSG Private Equity.

Mouton says what is crucial to these investments is to empower management by not interfering with the way they run the companies. It worked with Capitec, where the current chairman, Michiel le Roux, and the team led by CEO Riaan Stassen have built the country’s fifth-largest retail bank in South Africa, now worth R21-billion.

The trick for all investors is to decide when to exit. Mouton does not find it any easier.

“We sold where we could not get significant control, as with the JSE and Capevin, which is mainly a beverage maker.”

It might seem like it’s only been an upward trajectory, but PSG has had to weather some nasty storms along the way.

“Storms will always be there, but we have survived them: the Asian financial crisis, the tech bubble, the rand collapse in 2001, a hostile attempt to take control of PSG in 2002 and the 2008 financial crisis. We have adopted project internal focus, whereby we will mainly focus on driving gains in our portfolio rather than pursuing new investments. Because of our size only deals of about R1-billion ‘move the needle’,” he said.

In most events he’s spoken at in recent months Mouton has chosen to focus on Curro.

“Private education shows much promise ... we have seen that even in Curro schools targeting low-income segments parents will sacrifice a lot to get kids into our schools, Northern Academy in Polokwane being such an example. Compare this to private hospital groups in South Africa where the top three have more than R130-billion in market capitalisation or private security,” says Mouton.

Mouton says that when the cash starts to flow at Curro “it will be enormous”.

PSG is also betting big on the continent. Mouton is expecting big things from Zeder’s Chayton Africa, which has developed 4 000ha of land under irrigation for grain farming in Zambia. Africa is estimated to be importing more than $40-billion of food, including maize.

There is also PSG Konsult, a wealth-management arm that has 125 000 high net-worth clients, 225 branches and R192billion in funds under management and administration. The aim is to place more client funds in the group to be managed rather than outsourced to others.

“We also have infant companies in our cottage — such as distance-learning education provider Impak and Energy Partners — that will kick in profits in years to come,” says Mouton. “As to Capitec, our R5.8-billion investment, we note the challenges but we think reasonable growth will come out of it for many years to come, especially given the fact that its net transactional fee revenue topped R1.3-billion at year end.”

There is something of a mystique around Mouton, who is seen as the man with the golden eye for good opportunities.

Is there no danger that this could end when he retires? Mouton is, after all, 66.

“[Warren] Buffett is 82 and still going strong, so why must I even think about retiring? PSG is my life. I enjoy working with my sons, who, by the way, are here on merit. Piet Mouton is the chief executive. I try to keep healthy and during weekends I relax with my wife, friends and family,” he says.

Lediga is a specialist strategy writer and a businessman in Johannesburg.