Big growth potential in SA, says PSG

PSG Group, the investment holding company behind market darlings Capitec and Curro, still sees significant growth potential in South Africa despite trading conditions being hampered by subpar economic growth.

“If you look at many of our core companies within the group, they still have fairly small market shares – and you can grow, even in a constrained or difficult environment, by taking market share,” said PSG Group CEO Piet Mouton. “You need to be better than the competitors, and work smart.”

The group’s sum-of-the-parts (SOTP) value increased 7% to R272.94 per share in the six months to August 31 this year. Interim recurring earnings increased 22% year-on-year to R5.03 per share. The bulk of the value was created by Capitec, which accounts for 59% of the PSG Group’s SOTP assets.

According to small cap analyst Keith McLachlan, the group SOTP value concentration risk in Capitec is a result of its success. Capitec has outperformed PSG over the years. As the risk is concentrated in a high quality company like Capitec, PSG can leverage off it to invest in other business and even try to find the next Capitec, McLachlan said.

Mouton says Capitec’s business banking ambitions – to be realised either through buying Mercantile Bank or by building its own business banking capabilities – may affect shareholder value in the short-term due to upfront costs, but would be of benefit in the medium to long term.

McLachlan described PSG Group’s performance as “quite decent” in the circumstances. He noted that shares in the group traded at a discount to its SOTP value.

“In my opinion, PSG should trade at a discount to its sum-ofthe-parts value … If it can build another Capitec, then there is significant value to be gained.”