It is difficult to ascertain the real state of South Africa’s economy, how weak it truly is and how resilient the country is to bounce back. A clearer picture will only emerge in the next year or two, says PSG Group chief executive officer, Piet Mouton.
PSG Group published its interim results to August 2020, on Thursday (15 October) – the first time since its unbundling of an effective 26.4% of PSG Group’s 30.7% interest held in Capitec and disposing of 1.9 million Capitec shares for R1.7 billion cash.
The group reported earnings per share of R118.62 (2019: R6.39) and a headline loss per share of R14.14 (2019: earnings of R5.68).
The headline loss per share is representative of mainly the decrease in the share prices of PSG Group’s listed investments, while the earnings per share included a significant non- headline gain to the extent that the fair value of the unbundled Capitec interest exceeded its accounting carrying value as a non-current asset held for sale on the date of unbundling, being 30 July 2020 when PSG Group shareholder approval was obtained.
Continuing operations’ profit before finance costs and taxation amounted to R5.7 billion (2019: R1.1 billion), PSG Group said.
The group retains a 2.6% interest in Capitec for liquidity purposes and to bolster its balance sheet, while it also holds shares in private education group Curro, and Zeder, a struggling agribusiness.
PSG Group said its total sum-of-the-parts (SOTP) value per PSG Group share amounted to R75.86 as at 31 August 2020, representing a decrease of 20% compared to the R94.44 per share as at 29 February 2020 if the unbundled Capitec shares are excluded from the group’s SOTP value for comparative purposes.
The decrease is indicative of depressed equity markets and the challenging trading conditions brought about by the Covid-19 pandemic and associated national lockdown. On 9 October 2020, the SOTP value per PSG Group share was R82.80.
Following the unbundling of Capitec, PSG Group declared an ad hoc dividend of 164 cents per share, unchanged from the prior period.
Mouton made specific mention of the exceptional performance of PSG Konsult relative to the rest of the financial sector after reporting a 7% increase in recurring earnings per share, mainly driven by its Wealth and Insure divisions. PSG Konsult is now PSG Group’s largest investment, representing 34% of its SOTP value.
“We will continue with PSG Group’s objective to create wealth for shareholders on a per share basis by growing the underlying investments, including unlocking value through reducing the discount to the extent possible over time.
“Trading at a discount is an issue for investment companies globally and it seems that the ‘investment company model’ has fallen out of favour,” he said.
“Amongst the reasons for the discount is investment companies having permanent capital. Investors seem to favour the ‘unit trust investment model’, where entering and exiting at net asset value is a given.
“The recent sale of Pioneer Foods and the unbundling of Capitec should, however, prove to the market that we are not here to build an empire for management, but rather to create shareholder wealth on a per share basis,” he said.