PSG Group chief executive Piet Mouton has downplayed concerns related to the group’s exposure to and reliance on Capitec for growth.
In reporting for the financial year ended February 28, the investment holding company showed a 29% annual increase in its sum-of-the-parts (SOTP) value to R240.87 per share. The increase in the key performance metric, which is calculated based on market prices of JSE-listed investments and market-related valuations for unlisted investments, is largely attributable to Capitec.
The bank, which reported an 18% increase in headline earnings per share, comprises 47% of PSG’s total SOTP assets. The group’s SOTP calculations show Capitec’s value rising by R8.9 million to R25.73 million.
Capitec remains the major contributor to the group’s recurring headline earnings, which increased by 18% to R9.27 per share.
Mouton said there are no prudential limits on investment holding companies, unlike unit trusts. Unit trusts may only hold 10% of a specific share and are forced to sell their best performing shares if the 10% limit is exceeded.
“It’s better to hold more and not less of a best performing share. Capitec is a high-quality company… I’d go as far as saying Capitec is the kingmaker in the PSG portfolio. We’re in a great position to have it as our biggest company,” he said.
Keith McLachlan, a fund manager at AlphaWealth, echoed his sentiments.
“On one hand, there is concentration risk. If something goes wrong at Capitec, PSG is definitely exposed. But, having said that, Capitec is an extremely high-quality business, it is well managed and is scalable. If there’s one company to have over-exposure to, Capitec is a good one to have,” he said.
He went on to add that Capitec is in a relatively strong position compared to its larger banking rivals, in the wake of sovereign rating downgrades and the risk it poses for banks. According to McLachlan, Capitec’s strong points include its liquid balance sheet, conservative lending and provisioning criteria, low cost to income ratio and the agility of its short-term loan book.
Among the other significant contributors to PSG’s SOTP value, Curro reported a 55% increase in headline earnings per share for the financial year ended December 31 2016. PSG Konsult and Zeder report increases of 55% and 0.5% in respective recurring headline earnings per share for the period under review.
Mouton said PSG and the companies in its stable are well positioned to withstand the effects of the sovereign credit rating downgrade due to their strong balance sheets, low gearing and fixed interest rate exposure.
PSG declared a final dividend of R2.50 per share, effectively lifting the total dividend for the year by 25% to R3.75 cents per share.
Shares in PSG closed 1.6% higher at R255 per share.