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Why is PSG Group down nearly 80%?

And what is left now that its core holding is gone?
Image: Qilai Shen, Bloomberg

Shares in investment holding company PSG Group traded down over 77% to under R40 a share on Wednesday. This followed its unbundling of the majority of its Capitec holding to shareholders. PSG shareholders will receive 14 Capitec shares for every 100 PSG Group shares held as of Tuesday (August 25). Shareholders will not see the Capitec shares in their brokerage accounts until Monday (August 31), however.

In the unbundling, PSG Group has offloaded 28.11% in Capitec. It had originally planned on retaining a 4% share, but it reduced its interest in the bank by 1.04% in June. Following the unbundling, it holds 3.2 million shares (2.79%) in Capitec Bank.

PSG Group surprised the market at the end in April when it announced the unbundling. The reason for pursuing this now, despite turbulent equity markets, is twofold.

In the circular to shareholders, PSG Group says the rationale for the unbundling is to:

  • “Ease the administrative and regulatory compliance burden that would otherwise be imposed on PSG Group, should PSG Group be classified in terms of the FSRA as belonging to a financial conglomerate, as a result of its shareholding in Capitec, and to avoid the resulting restrictions that could impact on PSG Group’s ability to operate as a dynamic and nimble investment holding company; and
  • assist in the reduction of the discount at which PSG Group Shares trade to its sum-of-the- parts (SOTP) value and to unlock value for PSG Group Shareholders.”

The categorisation as “financial conglomerate” would almost certainly be in place (on a “mock” basis) from next year, which will come with a significant regulatory burden. Formal implementation is expected in 2022. Had the status quo continued, PSG Group would have been required to retain surplus capital and it would also require regulatory approval for large transactions, hindering its deal-making ability.

As the largest shareholder in PSG Group with a 19.3% stake, the Mouton family trust has become a material direct shareholder in Capitec. To what extent it will retain this holding remains to be seen.

Immediately post-unbundling, Capitec shares were up nearly 3% before paring gains.

However, the jury will remain out on whether value has been unlocked until trade in both shares settles. In the interim, the discount to the sum-of-the-parts of PSG Group has actually widened.

Feb 2020 26 Aug (10am)
Sum-of-the-parts (SOTP) value per share R276.43 R77.83
PSG Group share price R186.60 R39.50
Discount 33% 49%

What is left?

Post-unbundling, the self-styled ‘PSG Group 3.0’ will be a far smaller but “more nimble” company.

PSG Konsult is now the largest asset within PSG Group, comprising a third of its sum-of-the-parts.

PSG Alpha, which holds stakes in start-up/emerging businesses is next largest at around 20%. Its portfolio includes stakes in listed Stadio and CSG, as well as holdings in unlisted businesses in the energy (Energy Partners), retirement villages (Evergreen) and consumer goods service (CA&S Group) spaces.

The small stake in Capitec remains material in the new-look group, comprising just less than 20% of the total value.

Value (26 Aug) Percentage of SOTP
PSG Konsult R5.832 billion 34%
PSG Alpha (incl. Stadio) R3.626 billion 21%
Capitec R3.055 billion 18%
Curro R1.906 billion 11%
Zeder R1.736 billion 10%
Other (incl. R2.2 bn in cash) R1.894 billion
Perpetual pref funding (R1.13 billion)
Total sum-of-the-parts R16.919 billion

The group intends to stick to its historical “investment philosophy”, but the pressure is now clearly on holdings such as Curro and Zeder which have underperformed (in recent years, and for some time, respectively).

Curro is busy raising R1.5 billion in a rights issue, and PSG Group will not only follow its rights but also underwrite a further 40 million shares which will see its stake in the group increase. Zeder continues to trade at a significant discount to the sum-of-its-parts.

At the group’s recent AGM, it announced that it would “in principle not pay an annual dividend” going forward. It contends that shareholders will receive the Capitec dividend directly post-unbundling. It also says the adoption of a “more prudent dividend policy” is due to the fact that “PSG Group may continue to trade at a discount to its SOTP value, and that the equity markets will hence essentially remain closed for capital raisings”.

PSG share price over a month

COMMENTS   19

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Want Piet is maar net nie Jannie nie? Net soos by Remgro waar Jannie maar net nie Thys is nie.

Also problems with PSG Asset Management. Arguably the worst fund manager over the last few years with negative returns.

Agree. I’ve had a small investment with them for about 7 years now. Negative returns in that time.

Absolutely horrendous. I honestly think that their strategy was purely to punt their own fund-of-fund deals to be able to charge more fees.

Returns are non-existent.

Not really. There are far worse management companies out there. PSG is very middle of the road but certainly above Allan Gray who has become a perennial under-performer.

That’s what you get for ‘performance chasing’ i.e. your mistake not PSG’s.

What is the complaining about?

Apparently the PSG shareholder will get 14 Capitec shares for every 100 PSG shares on Monday.

Looks similar to when RMBH were unbundeld and the RMBH shareholder received FNB shares?

When the ANC is finished with South Africa, 80% down won’t look too bad as most things will have flatlined.

There are more sellers than buyers of PSG shares, as the ANC with its B…….whatever policies successfully created non-performing, state-driven authoritarian economy and regime which benefit single-party political élite who are not accountable to the people or community.
The financial sector has now become the heartbeat of the spineless market conditions that are left to operate under. Cadre deployment will eventually paralyze all sectors and companies in sunny SA.

Over reaction by market, way undervalued now

I thought so as well,
Just bought 1k @R40.

You may as well have donated that to your local ANC tenderpreneur…

There is no company left in the PSG stable that can generate Capitec’s returns. Zeder may have a future but the rest are really penny shares.

There are better shares out there – Naspers and Proseus – the rest will take a long time to recover.

Maybe their admin fees are too high

what is so difficult to understand?

PSG is down because you got Capitec shares to about the value that your PSG shares dropped. always happens with unbundling.

Have been with PSG for many years. Last week transferred my share accounts to Momentum. PSG’s share platform and investment advice are user unfriendly and non existent respectively.

You can negotiate fees with them. My sister did and reduced brokerage to 0.50%. In fact their fees are very much in line with all other brokerage houses.

Not much to choose between them.

Going to be interesting to see how HO adjusts its expenses and hired help salaries now that they don’t have to keep as many Capitec share certificates in the safe

They are a quality company with helpful/friendly/accessible staff at the engagement level. Why they don’t take advice from (outside) specialists to solve this befuddles me.My opinion?They should consider replacing all those who make investment decisions with new blood.(long overdue) And they need way more options for clients to invest overseas, especially now. (other investment companies do)Here’s an idea:partner with an overseas bank/investment house to make it happen! Hear that HQ??

End of comments.

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