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So with Steinhoff financial irregularities being the hottest topic discussed on the JSE in years, it has unfortunately (or fortunately if you looking to invest) dragged down the share price of various related companies. Think of Steinhoff Retail Africa (SRR), KAP, PSG Group (of which Steinhoff owns about 25%)
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Cheer up if you looking to buy PSG
PSG was started by Jannie Mouton, who is often referred to as the "Boere Buffet", basically the South African version of legendary stock investor, Warren Buffet. PSG Group has provided their shareholders with tremendous returns over the years, and has made a large number of their investors an astonishing amount of money, largely thanks to their significant stake in banking distruptor, Capitec Bank, who started off life as a micro lender and offering unsecured personal loans to the masses.
But over time, Capitec has grown into a fully fledged bank with massive client numbers, which continue to grow as more and more South African's get access to bank accounts, and as more and more people move away from their old banks into the new up and coming Capitec Bank.
While Capitec has been the gem in the PSG investment group's crown for many years, it is predicted that their significant holding in Curro Private Schools will become the main money spinner in future, as more and more people move their kids out of poorly run state schools into affordable private schools such as offered by Curro.
The graphic below provides details on just how badly PSG group and other entities related to Steinhoff has suffered due to the news of financial irregularities at Steinhoff.
But over time, Capitec has grown into a fully fledged bank with massive client numbers, which continue to grow as more and more South African's get access to bank accounts, and as more and more people move away from their old banks into the new up and coming Capitec Bank.
While Capitec has been the gem in the PSG investment group's crown for many years, it is predicted that their significant holding in Curro Private Schools will become the main money spinner in future, as more and more people move their kids out of poorly run state schools into affordable private schools such as offered by Curro.
The graphic below provides details on just how badly PSG group and other entities related to Steinhoff has suffered due to the news of financial irregularities at Steinhoff.
Since the beginning of December Steinhoff international has lost 85.6% of its value, while Steinhoff Retail Africa has lost 28%, PSG group 15.5% and KAP 5%. Now PSG's share price has been dragged down by at least 15% solely due to the fact that one of their biggest shareholders reported financial irregularities. Question is whether PSG group is affected by this in any way? We cannot see how PSG is affected by this as the financial irregularities seems linked to Steinhoff's international operations and the African operations of the group and those companies they hold shares in seems largely unaffected. If this is the case then the decline in PSG's share price provides prudent long term value hunters with a fantastic opportunity to buy.
For those not comfortable playing with the interactive chart above, the image below shows the share price returns for Steinhoff and PSG group and other related parties since the beginning of December 2017.
So what are PSG Group shares actually worth? Well based on the value of their listed holdings, and management's value of their unlisted assets, PSG creates why the call their Sum of the Part (SOTP) per share. This provides investors with a rough idea of exactly what PSG's assets are worth per share. Below a screenshot of PSG's SOTP as at 18 December 2017, 11:00
SOTP
The SOTP above shows that PSG's assets are worth R280.60 per share, while the share price is trading at R245.97, which is a discount of almost R15 per share. Thus investors if buying now will into PSG's assets at a R15 per share cheaper than what their assets are worth. Essentially on is buying into companies such as Capitec, Curro, PSG Konsult at a discount. A discount of R15 over a share price of R245 means investors are paying around 6% cheaper for PSG's assets than what they are actually worth.
The discount provides a nice cushion to investors, in that if PSG sells all their assets now and pays out the money to their shareholders, investors will make an instant 6%. This discount provides a nice safety margin for investors. PSG is known for extracting value for shareholders and we believe the current decline in share price brought on by the Steinhoff saga provides investors with a great opportunity to buy PSG's assets at a discounted rate.
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