PSG Group continues to deliver, but Mr Market continues to let it trade at massive discount to its assets.
​​Date: 16 October 2018
Category: Stock Market
​Share price at time of writing: R212.74

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We take a look at the interim result of investment holding company PSG Group Limited (PSG), famous for their massive holding in Capitec Bank and private schools group Curro. They also hold significant stakes in Zeder and PSG Konsult, which is a diversified financial services provider.

While PSG assets are worth way more than their listed share price, we are afraid the discount of the share price to the value of their assets will take a long time to narrow, with the discount being close on 20%.

Investment approach and background on PSG Group

Below describes PSG's investment approach as taken from their website:
  • 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
The graphic below shows PSG's share price history for the last 3 years.

Percent change:

Some of the basic metrics PSG reports on in their financial results are shown below:
• Recurring earnings up 22% to R5.03 per share
• Sum-of-the-parts value of R262.80 per share as at 12 October 2018
• Interim dividend up 10% to R1.52 per share

PSG's own measure of performance of the group is based on the Sum of the Parts (SOTP). Basically this shows the value of PSG's investments per PSG share. If that shows growth then PSG's share price is sure to follow. But investors need to take into account that PSG like other holding companies tend to trade at a discount to their assets. Especially if such assets are listed. Reason being investors can always buy the assets held by the investment holding company themselves on the stock market. Thus there needs to be an incentive for investors to invest in the holding company itself. And this is the reason why investment holding companies tend to trade at a discount to the value of their assets. Below a summary of PSG's major investments
By far PSG's biggest and most valuable investment is their 30.7% stake in Capitec Bank. Another significant holding that has generated incredible value for PSG in recent years is Curro Holdings (With PSG owning almost 56% of Curro). So what are these individual holdings of PSG worth? The SOTP summary below provides more details on what the individual holdings of PSG are worth.
PSG's 30.7% holding makes up 59% of PSG's total assets worth. PSG's stake in Curro is worth 10% of PSG's total assets. PSG Konsult is worth around 13% of PSG's total assets and Zeder makes up about 6% of PSG's assets. PSG Alpha which is now their private equity firm, makes up roughly 8% of PSG's total assets. 

Impatient investors have over the years avoided PSG, as their approach to investing is rather contrarian and tends to reap rewards over the long term, which is ideal for long term investors seeking a consistent approach to investing and asset growth as well as wealth creation.

PSG's dividend increased by 10%, to R1.51, but even that puts PSG group on a dividend yield of 1.4%. Investors looking for dividends should not be looking at PSG, as they have never been known as big dividend payers, but rather cash hoggers who use the money to invest in assets to keep growing the underlying value of PSG's assets.

The image below shows the SOTP and current share price of PSG group.
We believe PSG should be valued at their SOTP, we therefore feel PSG is worth the R263 SOTP as calculated on their website. See image below for the share price and SOTP as at 16 October 2018

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