Worth looking in PSG’s cupboards

MARKET discounts aren’t what they used to be. A decade or two ago it was the norm to see investment company shares (they were called investment trusts then) trading at discounts of 20%-30% of their underlying value, even if a large proportion of the investments was listed entities.

Goodness knows what the market watchers of yesteryear would have made of PSG Group. Close to 70% of PSG’s intrinsic value is found in listed investments like Capitec, Curro and Zeder (with the listed portions of empowerment associate Thembeka and the private equity portfolio thrown in for good measure).

Yet PSG’s shares offer a discount of just 6% on the latest sum-of-theparts valuation of R85/share. Either that’s a huge compliment to the wealth-creating abilities of PSG’s prime movers (notably founder Jannie Mouton); or the market believes one or two of the smaller investments (maybe human resources group CSG or distance-learning initiative Impak?) will come good in a spectacular fashion in a few years.

Perhaps it’s a bit of both. Punters who have followed PSG from the mid-1990s will know not to discount even the smallest investment tucked away in the darkest corner of PSG’s portfolio. Remember the quiet nurturing of a little business called Keynes Rational, which eventually grew into Capitec, and a harmlesslooking R50m flutter in a private school called Curro (which now has a market capitalisation of R5.6bn)?

TASTE Holdings remains remarkably upbeat in the face of signs of a slowdown in consumer spend, despite the company having recorded virtually flat sales — on a same-store basis — in its food division.

Its optimism is based on its growth prospects. The company expects to roll out 100 new outlets in the current financial year, with half devoted to new Fish & Chip Co outlets. The owner of fast-food outlets and quick-service restaurants like Scooters Pizza and Maxi’s has managed to unblock funding constraints on these new stores through an agreement with Brimstone and Nedbank, which will give Taste preferential funding for 50 new and existing Fish & Chip Co franchisees.

The company has also reaped the rewards from people buying down in the jewellery sector. Its NWJ outlets have had a strong first half, lifting sales 11% to R119m, and with the festive season just around the corner, NWJ looks like it’s going to have a cracker of a year, especially since it generates up to 75% of operating profits in the second half.

And it’s not only the jewellery business that benefits from consumers buying down. The food division is in a similar position. What the company really needs now is scale, hence its aggressive store roll-out. As it gets bigger, the efficiency in its food distribution business should improve. One need look no further than Famous Brands to see what this means for the bottom line.