PSG Group (PSG) will be the stock in focus: (Price at time of writing: R197.98) - Date: 23 March 2016
Latest News: PSG Founder has stepped down from PSGKonsult board, replaced by Riaan Stassen. Former CEO of Capitec 14/4/2016
Latest News: PSG Founder has stepped down from PSGKonsult board, replaced by Riaan Stassen. Former CEO of Capitec 14/4/2016
Background and overview of PSG Group (PSG)
PSG Group is an investment holding company that holds significant stakes in various listed and unlisted companies. Some of PSG's biggest investments include:
30.7% stake in Capitec Bank (CPI).
58.5% stake in Curro Holdings (COH)
33.8% stake in Zeder (ZED).
According to PSG their investment strategy and philosophy can be defined as:
More information on PSG Group can be found at www.psggroup.co.za
30.7% stake in Capitec Bank (CPI).
58.5% stake in Curro Holdings (COH)
33.8% stake in Zeder (ZED).
According to PSG their investment strategy and philosophy can be defined as:
- We invest in companies with uncomplicated business models operating in industries with attractive growth prospects and led by talented, hard-working and passionate people.
- We believe in co-investing with management – management as owners are generally focused and dedicated to continuously grow their businesses.
- A culture of good corporate governance is instilled at board level and is applicable to the entire organisation. It remains a cornerstone of the way we do business. In our opinion, however, good corporate governance is not necessarily represented by set rules, policies or codes, committees or meetings. It is rather relevant, transparent, timely, accurate and succinct information provided to those charged with oversight who, by their nature, are trustworthy and ambitious to act in the best interests of the company.
- We are long-term strategic investors with no predefined exit strategy.
- We add value by challenging management to innovate and grow their businesses, both organically and by means of acquisitions. We provide funding when needed.
- A company can only grow when its customer base increases. A focus on client satisfaction thus remains vitally important for our continued success.
- Funding remains critically important and integral to what we do
More information on PSG Group can be found at www.psggroup.co.za
Financial review:
PSG is a holding company and not really an operating entity. This does make valuing the stock a little harder than operating entities, as cash flows, earnings and expenses cannot be used in the same was as operating entities to value a share. For holding companies one would look at the value of net assets (and net asset value per share) in order to get an indication of the worth of the companies assets per share.
The graphic below shows the contribution of PSG's holdings to their total Net Asset Value (NAV). As can be seen from the pie chart by far the biggest contributor to PSG's NAV is their holding in Capitec. The growth in Capitec has been largely responsible for the incredible growth in PSG's share price over the last 10 years. PSG's NAV (or as they report it sum of the parts (SOTP) at the publication of their last financial results (for 6 months ending 31 August 2015)) was R209 a share.
If Capitec can keep up the momentum that they have been gathering over the last couple of years, and not fall into the trap of just pushing for as many clients as possible, but actually keep providing a quality service to their new and existing clients, they have a very bright future ahead., and by virtue of that PSG will have a bright future thanks to their large holding in Capitec. But as we wrote in our write up for Capitec, they are currently a little overvalued.
PSG has a excellent track record of unlocking value for shareholders over the long run. PSG should focus on unlocking value of slow mover Zeder. Zeder has quality assets but is trading at a large discount to its total assets. In addition to this PSG should look to invest in fast growing undervalued assets with the massive amounts of cash/capital they have access to.
PSG has a excellent track record of unlocking value for shareholders over the long run. PSG should focus on unlocking value of slow mover Zeder. Zeder has quality assets but is trading at a large discount to its total assets. In addition to this PSG should look to invest in fast growing undervalued assets with the massive amounts of cash/capital they have access to.
Valuation:
PSG's current SOTP as reported on their website at end 23 March 2016 is R204.67. We feel PSG deserves to trade at a small premium to the SOTP as reported in their last financial results (R209) due to their history of unlocking great value for shareholders over time. We therefore value them at R219.45 (5% premium to the NAV as quoted in their last set of financial results).