PSG increase recurring earnings per share by hefty 37%

PSG Group, the listed investment group with 40 underlying investments in a diverse range of industries, achieved strong financial results amidst slow-moving market conditions for the six months to Augustus 2010.

Recurring headline earnings increased by a sizeable 32,8% to R186,1 million, with recurring headline earnings per share jolting up by a hefty 36,6% to 111,3 cents. This represents the sum of PSG's effective interest in the recurring headline earnings of each investee, regardless of its percentage shareholding. This provide for a more realistic and transparent way of evaluating the group’s performance. Marked-to-market fluctuations are excluded.

Headline earnings per share increased by 0,8% to 137,0 cents. The major reason for the flat growth compared to the strong increase in recurring earnings was that the group had less marked-to-market profits in the period under review compared to last year.

An interim dividend of 20 cents per share (2009: 13 cents per share) was declared, following a decision to increase the dividend pay-out from 75% to 100% of free cash flow, of which one third will be paid as an interim and the balance as a final dividend at year-end.

Announcing the results, PSG Group CEO, Piet Mouton, said the group’s investment of 34,9% in Capitec Bank played a major part in the performance.

“This is evident from PSG Group’s Sum-of-the-Part (SOTP) value, which increased from R4,7 billion to R6,4 billion in the period under review. Capitec’s contribution in this regard amounted to more than 60%, increasing from R2,4 billion to R3,9 billion. At the end of August, the SOTP value per PSG Group share was R37,30 compared to R27,23 at the end of February. It has since increased to R41,81,” Mouton said.

The SOTP calculation values listed investee companies and debt using the quoted market price. Unlisted investments are valued using market related multiples.

Mouton said the majority of the companies performed better than last year. Both PSG Konsult and PSG Fund Management produced solid results in continued unfavourable market conditions. This was also evident at Paladin Capital in relation to the real economy, whilst Zeder Investments produced good results.

“All these companies are well positioned and present the potential for above average growth should the market recover.

“Our focus remains to grow our underlying companies and we shall continue to invest in assets and sectors that offer attractive growth prospects and returns,” Mouton said.

In the period under review Capitec Bank’s headline earnings increased by 59% to R284 million and headline earnings per share by 58% to 340 cents. Return on equity increased to 34%. Capitec remains in a sound financial position with R1,9 billion in equity and a well diversified mix of funding with R4,9 billion in retail and R3,6 billion in wholesale deposits.

PSG Konsult, in which PSG Group holds an interest of 73,5%, has performed satisfactory with headline earnings having increased by 9,6% to R43,3 million. Funds under administration increased by 12,7% to R81,6 billion. Its diversified revenue streams and focus on creating sustainable annuity income have proven resilient amidst challenging economic conditions.

PSG Fund Management, in which PSG Group holds an interest of 81%, headline earnings per share declined by 3,9% to 63,5 cents per share. Funds under administration increased by 12,2% to R26,2 billion, while higher margin funds under management decreased by 4,9% to R11,3 billion.

During the past six months the management at PSG Fund Management has continued to focus on creating a single PSG branded asset management business, with a simplified holistic product range covering the full investment risk spectrum.

Paladin Capital, PSG Group's private equity investment company, in which it holds an interest of 81,3%, was effected by tough market conditions especially in the construction and manufacturing sectors which resulted in recurring headline earnings per share decreasing by 11,8% to 6,7 cents. However, Paladin’s intrinsic value increased significantly from 163 cents to 245 cents per share on the back of its 49% interest in Thembeka Capital, which increased its intrinsic value from R468 million to R848 million as at 31 August 2010.

Zeder Investments, in which PSG Group holds an interest of 41,7%, achieved a solid 54,9%increase in recurring headline earnings to R124,5 million while recurring headline earnings per share increased by 24,5% to 12,7 cents.