More share buybacks with PSG Konsult cash pile
PSG Konsult plans to use its more than R2bn war chest to buy back more shares and maintain its attractive dividend distribution as it continues to shun acquisitions in favour of organic growth.
The investment and insurance holding company said in its annual results on Thursday cash and cash equivalents, including money market investments, jumped 18% to more than R2bn in the year to end-February. That will allow it to continue buying back shares as part of its capital optimisation strategy while maintaining a high dividend payout ratio, which the group’s board has raised to 60% from 46% in the latest financial year.
This comes despite the Bellville-based group reporting a 3% rise only in earnings attributable to ordinary shareholders, which inched up to R950.77m, as recurring headline earnings per share rose 5% to 72.9c. Even so, PSG Konsult still declared a final dividend of 25c a share, taking its full-year dividend to 36c, 13% higher than the previous year’s distribution.
“We’re sitting with such strong capital ratios that we need to optimise that capital,” CEO Francois Gouws said in an interview. “Our first priority is to maintain our dividend. To the extent that we have excess cash, most certainly, we will continue to buy back stock. We think generally it’s better to do buybacks than special dividends – that’s not really a consideration for us at this present moment.”
PSG Konsult’s capital cover ratio continues to comfortably exceed the minimum regulatory requirement of 100%, at 263% in the year to end-February from 240% the previous financial year. The majority of life insurers in SA typically have capital cover ratios of 160%-180%.
That high solvency level, along with zero debt, enabled PSG Konsult to buy back and cancel 35.7-million shares at a cost of R415.9m in the past financial year.
The group wants to extend that capital optimisation strategy for the benefit of shareholders as it continues to focus on slow and steady organic growth rather than acquisitions.
“We’re showing sequential growth so when you’re doing that there’s no reason to be aggressive on the acquisitive side,” said Gouws. “We won’t rule it out completely but it would be highly exceptional for us to do that.”
PSG Konsult’s last acquisition was announced in September 2017 and involved the purchase of Absa’s insurance and financial adviser business. That added about 141 new advisers along with more than 60,000 clients, which then had to be integrated into its operations.
“Once you make significant acquisitions you have to spend a lot of time on implementation and execution,” Gouws said.
“It’s a distraction from organic growth.”
PSG Konsult’s share buyback plan comes despite a challenging operational backdrop in the past financial year when its adviser-led wealth unit again accounted for the bulk of its earnings while its asset management and insurance divisions lagged. Assets managed by PSG Wealth’s network of 590 finan
cial advisers rose 12% to R305.5bn, including R13.3bn in positive net inflows. PSG Wealth also achieved recurring headline earnings growth of 11.4% to R568.49m, almost 60% of the group’s annual earnings.
Total assets under management (AUM) rose 13% to R354bn, with the bulk (R305.5bn) overseen by PSG Wealth. The rest is overseen by PSG Asset Management, where recurring headline earnings fell 9.8% to R220.32m.
Nevertheless, the asset management unit’s AUM rose 16% to R48.6bn due to a combination of market movements and net client inflows. Assets administered by the division rose 14% to R197.6bn, supported by R7.7bn in multimanaged net inflows.
The performance of PSG Wealth and PSG Asset Management came despite the JSE all share index rising just 2% during the reporting period, down from 15% the previous financial year. PSG Konsult said this affected performance fees, which constituted 6.5% of headline earnings compared with 10.6% for the previous financial year.
“The problem with performance fees is that they’re not as predictable as your recurring income fees,” said Gouws.
“The assets have grown, which tells you the [PSG Asset Management] franchise is strong
… inflows were good … but obviously the market hasn’t done as well as it did the previous year — there’s really nothing more to it than that.”
PSG Insure delivered a 9% increase in gross written premiums, to R6.2bn. Recurring headline earnings fell 3.6% to R159.97m due to higher claims.
“From a cost perspective, our insurance division was adversely impacted by the KwaZuluNatal floods [in] April 2022, but Western National’s comprehensive reinsurance programme cushioned the effect on underwriting results,” said Gouws.
Gouws said these earnings had to be viewed in light of the “high base” of the previous financial year when the group released about R30m in business interruption provisions as the Covid-19 pandemic eased.