With a billion rand war chest and share that is now trading at a 15.6% discount to its sum-of-the-parts (SOTP) value, PSG looks decidedly interesting.
The investment holding company’s SOTP per share rose by 15.2% to reach R109.52 at the end of August, six months into its trading year. It had risen by another 8% to reach R118.49/share by 10 October.
Recurring headline earnings per share grew by 30% to 252.7 cents, its fastest rate since the year ended February 2013, and headline earnings per share rose by 31% to 312.9 cents.
Capitec, PSG Konsult and Curro account for 71% of the sum-of-the-parts value. Zeder is a little smaller and accounts for 10% of the value. The balance is made up by PSG Private Equity, and the soon-to-be absorbed Thembeka Capital.
The strong earnings per share growth was driven by Capitec, which rose by 21%, PSG Konsult (32%) and Zeder (78%).
While Curro’s earnings contribution remains relatively small, it reported a 76% increase in recurring headline earnings per share for its six months ended 30 June 2014.
PSG expects this investment to become a major earnings contributor in years to come. PSG Private Equity – from which it is hoped the next Capitec or Curro will arise – reported a 49% decrease in recurring headline earnings per share following tough trading conditions within certain investments.
“Overall this was a strong performance but should have come at no surpirse to the market which was updated last week,” says Liston Meintjes, head of investments at Sasfen Asset Managers. “Yet shareholders traded over 600 000 PSG shares on Monday, pushing the price up 3%.”
Particularly pleasing was the interim dividend of 55 cents, representing an increase of 28%. “There are not many companies on the JSE that can boast dividend growth like this; in fact there are many where the growth is negative,” he says.
While the financial services businesses (Capitec and PSG Konsult) performed well, it was Zeder’s growth that Meintjes found notable. “There is an enormous amount of work going on there, and this is evident in the jump in attributable earnings – from R38 million in August 2013, to R68 million in this period.”
This might be the business to watch. “Investors also don’t appreciate the size of the Agri Voedsel deal,” he says. “I have no doubt that PSG intends to make Zeder a powerful entity in its own right.”
The Agri Voedsel transaction, involving about 4 900 Agri Voedsel shareholders and amounting to R2.7 billion, is a major milestone for the company, says PSG CEO Piet Mouton. “It constitutes the largest single transaction in our history.”
Following the implementation of the transaction Zeder will own an asset portfolio in excess of R10bn, with its 32% direct interest in Pioneer being the major investment. As a result of the acquisition PSG’s interest in Zeder will dilute to 29.1%.
Another notable event in the past six month period was the work done to strengthen the PSG balance sheet. The company raised R920m through the issue of new equity by means of a bookbuild in June, and a further R155m through a private placement in August.
“PSG raised a sizeable war-chest seemingly with ease,” says Meintjes. “They are acquisitive and I would expect to see further investment in Zeder.”
The share closed the day at R100.62.