PSG strategy starts to bear fruitComment on this story
Investment holding company PSG Group yesterday praised its “Project Internal Focus” for improving its underlying investments performance. The group’s financial services subsidiary is now ready to list on the JSE.
Some of subsidiary Zeder’s investments were expected to report higher earnings and even investments in the development phase had restructured to position themselves for growth, the company said.
PSG has investments in companies including Capitec, Curro Holdings, Zeder Investments and Thembeka Capital.
A year has passed since PSG introduced its “Project Internal Focus” strategy, in terms of which the firm aims to be more involved in the operations of its underlying investments by providing strategic inputs where needed.
“There are a number of places where the success of the strategy is more evident. Take PSG Konsult; the company now has a clear path going forward and it can focus on top-line growth,” Piet Mouton, PSG Group’s chief executive, said.
He pointed out that Zeder Investments provided further evidence of the strategy’s success. “It now has five core investments and is able to give more attention to those.
“If you look at Pioneer Foods, it came up with a trade update that first-half earnings could increase by between 38 percent and 52 percent,” Mouton said. “Internal focus is going to be our strategy for the foreseeable future.”
While progress had been made on honing its focus, PSG acknowledged that investments in the development phase, such as private schools operator Curro Holdings and Chayton, required more active strategic input from PSG.
It said these companies were likely to experience more challenges as they expanded and PSG expected them to start making a meaningful contribution to its earnings only in later years. As these companies struggled, PSG said the cost of funding associated with its investments in them exceeded the investment returns from a short-term earnings perspective.
“Curro is a great example. We invested R1 billion but our share of earnings from Curro in the past year was about R20 million. But we invest for future growth. We are quite willing to have lower returns for now because we believe the company has the ability to provide long-term growth.”
In the year to February, PSG’s sum-of-the-parts (SOTP) value a share increased by 31 percent to R95.01.
Like recurring headline earnings a share, SOTP is used to evaluate PSG’s performance over the short to medium term. As of Friday, the group’s SOTP value was R106.42 a share.
But it said the increase in SOTP value a share over time would depend on sustained growth in the profitability of its underlying investments.
“So yes, if we believe that the investment can’t deliver returns above the market average over time, we will consider selling it. But we believe our underlying investments still have a great future ahead,” Mouton added.
In the year to February, PSG increased its headline earnings a share by 15 percent to R5.51. It declared a dividend for the year of R1.33 a share, 20 percent higher than last year.
Shares in PSG Group rose 1.43 percent to close at R98.50.