The tale and the dog
One of the key issues raised at PSG Group’s results presentation last week was whether the Stellenbosch-based investment house is now merely a proxy for Capitec Bank.
Capitec does loom large in PSG’S life, representing more than two-thirds of the sum-of-the-parts (SOTP) value. This may also explain the larger discount that PSG shares offer to the SOTP value.
CEO Piet Mouton acknowledged that the Capitec proxy issue is a fair question, but emphasised that ultimately
PSG is more concerned about constantly delivering value than fretting about discounts … though the discount could be a niggling factor if the group needed to issue new shares to raise cash.
Mouton was more authoritative on his pronouncement on the debt levels in Curro, the private school juggernaut where PSG is the anchor shareholder. Possibly investors, despite placatory statements to the contrary, are still wondering if Curro may have to tap shareholders for fresh capital.
Roughly R1bn still needs to be invested by Curro to bring its current schools to full capacity.
Mouton said the key metric for PSG is Curro’s interest cover ratio, which sits at over four times (if the Meridian business is excluded).
This is well ahead of the 1.75 times covenant and comfortably clear of the “internal benchmark” of 2.5 times.
That cash flow is strong and predictable should be reassuring, but there is also the key point that capital expansion is elective, with replacement capital rolling along at around R40m a year for the past few years.
PSG reckons Curro can at any stage postpone growth plans and use cash flows to cull debt.
By Mouton’s calculations it would take just three years to repay debt — which might reinforce the reiterations that “barring any significant acquisitions, Curro does not foresee the need to raise additional equity capital”.
Cash is king
The much-diminished Astoria share price now reflects the effect of its recent cash disbursement to shareholders. What the share price does not reflect is the last stated NAV of the remaining investments, which I estimate to be more than 270c a share. A discount of more than 40% on the remaining assets might be understandable since exiting these mainly private equity positions might not be a cinch. The fact is that Astoria is sitting on $13m of cash, which equates to roughly the share price of 155c.
I’m sure the remaining investments — smallish holdings in Apollo Natural Resources Partners II, CS Capital Partners V, Star Strategic Assets III, V Ocean Investments and Kingswood Holdings — don’t exactly resonate with most local investors. But writing these positions down to zero seems a tad harsh.
The test for the remaining value will be if investment company RECM & Calibre (RAC) makes another bid to take control of Astoria. RAC can now probably opt to make a cash-only bid, with Astoria’s market value sitting at less than R200m. But — despite the advantages of Astoria’s domicile in Mauritius — it seems the market does not expect RAC as dogged deep-value specialists to offer too much over the cash underpin.
Wood for the trees
Executive remuneration is constantly under the spotlight these days. So here’s an interesting little aside involving Kaydav, where the combined packages of the CEO and FD represent 10% of the company’s market capitalisation, 20% of operating profits and almost a third of bottom line. The combined package for the past financial year was R8.5m — which some might regard as high for a company of Kaydav’s size. Others may be extremely relieved that these executives have seen the company through rough times for the building and furniture manufacturing sector, and grateful that the resumed dividend of 6.5c a share comfortably tops the combined pay package to the CEO and FD.
Roughly R1bn still needs to be invested by Curro to bring its current schools to full capacity