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PSG shareholders not impressed with latest ‘largesse’ for top trio

Paid a combined R127m in FY2019, they appear to have no plan to get the share price up from its 2015 levels.
The multi-million share option award is difficult to accept when shareholders are nursing hefty knocks. Image: Shutterstock

News of a generous, albeit conditional, multi-million share option award for PSG’s top three executives did not go down well with shareholders dismayed that the share price is currently back at 2015 levels and that the same three execs appear to have no plan to address the problem.

It’s not just the latest award; the grim share price performance seems to have had little impact on the group’s long-standing remuneration policy and the substantial packages pumped out to the top three, namely CEO Piet Mouton, finance director Wynand Greeff and executive director Johan Holtzhausen.

In financial year 2019, the three were paid a combined R127.4 million, almost three quarters of it gains from the exercise of share options.

The group’s 2019 remuneration report suggests that anyone struggling with the generous rewards needs to take a longer-term perspective.

Each of the three executives, says the PSG remuneration committee, has served in their current roles for at least nine years. Over this period the share has gone from R22.05 (February 2010) to R259.78 (February 2019) and, says the committee, assuming the dividends were reinvested in PSG shares, this represented a return of 33% per annum over the period.

“Shareholders have accordingly benefitted significantly from the value created, while executive directors have been remunerated commensurately due to their interests being materially aligned with those of shareholders,” it states.

On the face of it, this perspective does look reasonable and it conveniently reminds investors of PSG’s glory days.

The group has an impressive track record, dating back to its establishment in the 1990s by Jannie Mouton (father of Piet). Its backing of Capitec – enabling it to grow from scratch to one of the largest banks in South Africa within just two decades – was particularly impressive. Many investors have bought into PSG to get access to Capitec in much the same way Naspers was used to get access to Tencent.

But the days became notably less glorious from early 2018, as economic growth remained a distant dream and investors appeared spooked by the reminder of then-Steinhoff CEO Markus Jooste’s close relationship with PSG when, in early 2018, cash-strapped Steinhoff offloaded its 25% in the group.

But at least one investor reckons it’s not just in the last few years that PSG’s performance has lost the sort of shine that justifies hefty remuneration packages.

Unpacking the share price

Albie Cilliers has gone back to the February 2010 date referenced by the remuneration committee and notes that back then R14.90 of the R22.50 PSG share price was attributable to the stake in Capitec. This left a ‘surplus’ value attributable to PSG of R7.15. Fast forward ten years to end-February 2020 and PSG’s share price is trading at an apparently impressive R187. But, says Cilliers, strip out the R211 attributable to its Capitec stake and you’re left with a negative R24 a share.

“In other words, over the past ten years the value attributed to the ‘skills’ of the three PSG executives reversed from a positive R7.15 per PSG share to a negative R24 per PSG share,” says Cilliers.

“That’s equivalent to R6.9 billion since 2010.” 

Add in the R2.67 billion of Capitec dividends received by PSG during the period, and the long-term picture looks extremely grim.

PSG share price over 10 years

Capitec in perspective

And while PSG can rightly take credit for getting Capitec onto its dramatic growth trajectory, after the 2003 unbundling of 55.3% of Capitec shares, it cannot claim any credit for the bank’s ongoing success. In the Sens announcement released at the time, PSG was clear: “Capitec is now totally independent, has its own business plan and culture, dedicated management and staff and adequate capital to stand alone.”

Read:
PSG prunes its roses
Special report: The big discounts on holding companies

Unsurprisingly, things haven’t gotten any better during one of the JSE’s most turbulent trading periods since 2008. At the close of trade on Monday, PSG’s sum of the parts (SOTP) was R277.42, which towered over PSG’s own share price of R177.85 that day – an eye-watering 35.9% discount. It’s even at an 18% discount to the value of its Capitec stake.

So not only is the market attributing no value to PSG’s other investments – which include 60.6% in PSG Konsult, 55.4% in Curro, 44% in Zeder and around R5 billion worth of unlisted assets – it’s not even attributing full value to the Capitec jewel in the crown.

Is something going on?

Sasfin’s David Shapiro, who avoids companies like PSG, where the component parts can be bought directly in the market, says the sustained and steep discount makes it difficult not to suspect something is going on.

“Maybe there are concerns about Capitec,” suggests Shapiro, before noting that Capitec has just released an impressive trading update.

“Investors are spooked; it could be the turbulent times we’re in or something more specific to PSG.”

Shapiro says it’s difficult to know what Mouton can do about it. “If he sells any assets, what will he do with the cash? There’s nothing to buy here.” PSG itself has played down any prospect of a significant share buyback, saying it would have little impact on the discount.

Without any major investments on the horizon, there’s no pressure on PSG to sell assets. It rakes in about R600 million a year in dividends from Capitec and is set to pick up around R2 billion from PepsiCo’s just-confirmed acquisition of Pioneer, which represented a large portion of Zeder’s assets.

Read:
Capitec says full-year profit to rise by up to 21%
Employee deal mooted as part of PepsiCo-Pioneer takeover

Anthony Clark, an independent analyst who has tracked PSG and its component parts for several years, says if the challenge is to unlock value for shareholders then it’s not about selling assets but about unbundling them. However Clark believes this is unlikely to happen as the Mouton family has a controlling stake and appears unwilling to pursue this course of action. “But something has to give.”

He describes the underlying assets as solid businesses with good management and notes that for a while they were market darlings.

“If the economy picks up these businesses will pick up.”

RECM’s Piet Viljoen agrees there’s little chance of an unbundling, particularly of Capitec, and believes PSG management should not react to market pressure. “Naspers undertook a complicated and expensive exercise to deal with its discount and achieved nothing.”

His only criticism is directed at their poor communication with investors, which rather remarkably for a listed company includes not taking questions at results presentations or AGMs. “They should communicate their strategy to the market and repeat it,” says Viljoen.

Capitec unbundling ‘unlikely’

Kokkie Kooyman, portfolio manager at Denker Capital, agrees that an unbundling of Capitec is unlikely and contends it would achieve little. He backs the PSG model and believes the top executives are totally committed to making it work, but agrees the remuneration issue looks a little insensitive.

“They should demonstrate their confidence in the future by taking no salary increases or bonuses and telling the market they are confident the share price appreciation will be sufficient reward.”

Meanwhile, during turbulent times it does help to have a big parent, notes one analyst. But the issue then returns to executive remuneration. Why, asks the analyst, if PSG and most of its underlying assets – excluding Capitec – can only perform when the economy is performing, are the top executives so generously remunerated? “That largesse is difficult to accept when shareholders are nursing hefty knocks.”

No doubt Mouton, who said he could not comment because of the closed period, will provide some insight at the upcoming results presentation.

Listen to Nompu Siziba’s interview with Deloitte Africa’s Tyrone Jansen:
 

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Maybe Piet is not Jannie just like at Remgro where Jannie is not Thys?

Well said.

Piet should spend time with Oom Jannie (his dad) and get some advice. right now, PSG has no plan, other than to enrich the execs.

When times were good everybody kissed Mouton’s butt. Now times are bad and people everywhere are looking at each other’s salaries. As if splitting Mouton’s salary between shareholders will make any difference.

PSG consult showed their motto ..” it’s all about me…not the client “. When you start to ask uneasy questions , the legal team will respond that “ you signed the fineprint “. A culture in the group that only cares about themselves .

What is happening at the PSG asset manager? Senior persons have left and performance is non-existent. The PSG advisers put your money in their fund of funds, which also owns PSG asset management. If you ask why they have not been fired, you get told you cannot fire your own fund manager. Really?

It is the best of business models. They receive a guaranteed, monthly inflow of cash from clients and they use it to support the asset value of their own companies. That means they support their personal nett worth by allocating their clients’ money to the chosen destination.

That means that their clients are working day in and day out in order to support the nett worth of their favourite group of individuals. This is how honey bees work tirelessly to support the king bee. That is fine though, as long as everybody shares in the honey.

It seems the market does not like Stellenbosch companies with boards comprising mainly friends & family that run listed groups as if they are family firms.

We live in a capitalistic world; but surely the above remuneration cannot , in all honesty, be justified when taking all factors into consideration? It would seem that the gravy train mentality which has reached Olympian levels, (as started by the worlds only living brain donor zuma) is well ensconced in RSA and is here to stay for quite some time. The above clearly shows that top execs have reached the same attitude of entitlement as government; that other prized plonker Peter Moyo “earning” a salary and bonuses of R 80 million in less than 12 months with Old Mutual also a case in point. Then when that assurer was carved up into 4 “to unlock shareholder value” also had the very fortunate side effect of unlocking hefty bonuses for the upper echelons in said corporation. Well it would appear as plain as day that the top brass are also very astute at padding their balances and shareholdings by not really bringing anything real to the table. For all those bonuses and what not, you would think that they, the top execs of a company, would be able to cure cancer, or bring an end to famine, terraform Saturn, or be able to ban all soap operas on TV or films of the musical genre and such? The pigs are at the trough with their snouts well stuck in…

R127m between 3 of them 75% of which due to share options… so if you do the math then they got paid an average of R10-11m each in 2019 excluding the shares. Is that excessive? I would assume the options would have been worth much more if the share price was higher and then the R127m would have been substantially more. As a shareholder I am very happy to see them getting paid in shares as long as it is issued at current values and are long dated, which I assume the R127m was and hence they getting paid for the long term performance of PSG which has been great. Hope they are getting some more shares here at current levels so they can get paid properly in 5 years or NOT if the price doesn’t move from here.

And well done for not selling your Capitec shares in 2010, just imagine the value destruction you would have incurred spending that cash elsewhere, you have created lots of value hanging on to it and should be remunerated for that, sitting on your hands can create lots of value…

PSG is pure junk. Capitec is the only shining light in their stable.

I have had various services from PSG over the past decade with high hopes but in all cases, they have proved to be complete flops by comparison.

Stay far away.

PSG is surely a Capitec proxy and maybe a punt on Zeder and Curro. Perhaps this is a shirt-sleeve to shirt-sleeve in 3 generations kind of thing?

Perhaps PSG needs new management, from top to bottom, or a new investment strategy, (or both!), to restore their glory days.The true test of a company (and its associated parts),is how they perform in panicky economic times like these.Keeping the ship steady is one thing, but what if it runs out of power? It’s an overused term but they are underwhelming right now; mind you,they are not alone as the entire industry in SA seems to be similarly affected.Thus one would imagine that they would like to stand out from the crowd?

This has a bit of a Steinhoff / Tongaat / SASOL whiff about it to me. No thanks, although I do have some insipid investments with PSG.

Piet Mouton reminds me of Little Carmine Luppertazzi from the Sopranos. “Fixing wet t-shirt contests down in Florida”

End of comments.

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