PSG Group recurring headline earnings increase by 11%

PSG Group reported a pleasing 11% increase in recurring headline earnings per share to 81,8 cents for the six months ended August 2009. Recurring headline earnings (before funding and STC) increased by 3% to R181 million.

Announcing the results, PSG Group’s chairman, Jannie Mouton, said PSG has over time consistently sensitised the market that recurring headline earnings is a more sustainable measure of PSG’s performance, as headline earnings tend to be very volatile. Recurring headline earnings excludes mark-to-market and other once-off items.

For the period under review, PSG Group’s headline earnings per share increased by 359% to 135,9 cents per share. The main contributors to these earnings are the marked-to-market movements in Thembeka Capital’s and PSG Corporate’s listed share portfolios. In contrast PSG’s headline earnings for the previous reporting period, for the year ended 28 February this year was 65 cents per share, a then decline of 78%.

Mouton said PSG Group’s structure was further refined and is now well defined in five predominant investments, with earnings diversified across a broad spectrum of the economy.

A stellar performance was delivered by retail bank, Capitec in which PSG has a 34,9% interest. Its earnings for the period under review increased by 50% and contributed R62m to PSG’s earnings. The bank remains on solid footing with R1,5 billion in own equity against R4,3 billion of assets (excluding cash) and it is in a position to repay all retail call deposits on demand. Mouton said the performance can be attributed to Capitec’s strong management as well as its positioning in a growing market segment. Capitec now has more than 2 million clients a 31% increase from a year ago.

Taking cognisance of the current economic environment and the effect on its clientele, PSG Konsult delivered reasonable results with its contribution to PSG’s headline earnings down by 17% to R29 million. However, total fees increased by 3% to R373 million and funds under administration increased from R50 billion to R63 billion aided by the acquisition of T-Sec’s private client stockbroking clients.

PSG Konsult, a 73% subsidiary of PSG Group, remains well positioned with growth prospects through a strong distribution network of around 200 offices and more than 500 advisors serving 120000 clients, Mouton said.

In addition to its 41% stake, PSG also manages Zeder. Its contribution to PSG’s recurring earning was R36,4 million, an increase of 30% mainly as a result of PSG increasing its shareholding and following its rights in a R495 million rights issue by Zeder.

On a per share basis, Zeder’s recurring headline earnings decreased on an increased number of issued shares, as well as a poor performance by KWV having made a loss of R17,4 million. Zeder was however instrumental in the process to separate the KWV’s own operations from its investment in Distell, housed in Capevin Investments. New boards of directors were formed for both companies. This separation will increase the emphasis on KWV’s own operations which should ensure an improved return on equity for all shareholders, said Mouton. Furthermore Zeder increased its stake in Kaap Agri to more than 37%. Despite Kaap Agri’s successful own operations it also has a 32% interest in Pioneer Foods.

Paladin listed on the Altx in September 2009 and raised R150 million by means of a renounceable rights issue to PSG shareholders earlier in October. Mouton said Paladin, which is managed by PSG Group, remains PSG Group’s preferred investment vehicle in industries other than the financial and agri related sectors with its investment portfolio currently comprising of 13 investments.

Paladin’s contribution to recurring headline declined by 21% to R30,1 million as a result of a loss contribution from tanker manufacturer, GRW, who was severely affected by the downturn in the economy. Paladin’s R68,1 million contribution to PSG’s to non recurring headline earnings was lead by Thembeka Capital through the favourable marked-to-market movements of its investments in JSE Ltd and Capitec.

Most noteworthy on the corporate action side was Paladin’s R50 million investment for a 50% interest in private schooling group Curro, a sector which Mouton believes offer attractive long-term growth potential.

PSG Group’s 80% investment in PSG FutureWealth was sold to PSG Fund Management in which PSG holds 95%. It is believed that the combination of these businesses will lead to a more integrated client offering and other synergies. Although funds under administration and management increased by 18% to R23 billion and 9% to R10,5 billion, profitability remained under pressure with its contribution to PSG Group’s earnings decreasing by 30% to R10m.

In line with its dividend policy to declare 75% of free cash in annual dividends, an interim dividend of 13 cents was declared.

Mouton said PSG Group has dreams and a plan, and remains excited about the future.