Solid year-end performance by PSG Konsult

18 April 2019 PSG Konsult

Strong financial position and resilient business model underpin results

Announcing its final results today for the year ending 28th February 2019, PSG Konsult (KST) disclosed a 4% increase in recurring headline earnings per share and a commendable return on equity of 21.5%. Total assets under management increased by 8% to R222 billion, and gross written premiums amounted to R4.5 billion, a 36% increase over last year.

“The performance of our key operating and financial metrics demonstrates our competitive advantage, given challenging operating conditions including a weak economy, subdued consumer sentiment, negative returns on local equity markets and currency volatility,” said CEO Francois Gouws.

The company’s solid performance and a strong capital position enabled the board to declare a final gross dividend of 13.5 cents per share from income reserves, a 10% increase over 2018 (12.3 cents per share). This brings the full year increase in total dividend to 14%.

“The group’s strong cash flow generation supports the dividend increase, with this year’s dividend payout ratio of 45% at the mid-point of the 40% to 50% dividend policy range announced at the time of listing,” Gouws said.

PSG continues to invest in its business given the board’s confidence in its long-term growth prospects.
Specifically, investment in technology resulted in a 29% increase in related costs this year, while personnel costs also increased markedly over the previous year mainly due to an increase in technology staff hires and 68 newly qualified graduates (88% of which are ACI* candidates). “The graduates we hired are part of our continued strategy to build our own talent.”
PSG Konsult comprises three operating units: PSG Wealth, which offers a comprehensive wealth management service to individuals and families; PSG Asset Management, which manages local unit trusts, global funds and segregated portfolios for individual and institutional investors; and PSG Insure, which offers personal and commercial insurance solutions.

PSG Wealth’s recurring headline earnings were flat, but Gouws is satisfied with this result in the context of poor market conditions. Overall, Wealth’s revenue was up 5%, which included a 9% increase in management and other recurring fee income.

“Cost increases were greater than revenue growth due to continued investment in our IT systems and platforms. The R175 billion of client assets our Wealth advisers now manage includes R10 billion of positive new inflows and we remain confident about the fundamentals and prospects of this division.”

PSG Wealth’s formidable financial adviser network consisted of 546 wealth advisers as at 28 February 2019 and continues to add credibility to the growing equity of the PSG brand.

PSG Asset Management’s recurring headline earnings increased by 7%, despite a 64% decline in performance fees earned in the current year, given the negative total return of -1% for the JSE/FTSE All Share Index compared to a positive return of 17% last financial year.

“The division’s excellent long-term track record of delivering top-quartile risk adjusted investment returns for our clients continues to deliver high quality recurring earnings, even under difficult market conditions. The team’s ability to consistently generate alpha across asset classes for clients over the appropriate investment horizon remains intact,” Gouws said.

Client assets under management increased by 11% to R47 billion during the year under review. This included R6 billion of single manager positive net client inflows, predominately into the division’s higher margin funds, with the majority coming from its retail target market.

PSG Asset Management continues to be recognised as an industry leader and was again voted by Morningstar as one of the top-two South African fund houses.

PSG Insure’s recurring headline earnings grew by a commendable 19%. “The group is satisfied with the division’s performance and believes that the costs incurred in the current year to fund growth initiatives will ensure continued growth,” Gouws said.

The division’s substantial increase in gross written premium growth of 36% validates its continued focus on growing the commercial lines’ side of the business, which requires specialist adviser expertise.

The number of insurance advisers increased by 58% to 386, mainly due to the acquisitions of the Absa Insurance and Financial Advisers (AIFA) businesses. Following the completion of the commercial and industrial brokerage business acquisition during 1 June 2018, the division acquired the remaining short-term face-to-face advisory insurance brokerage, effective 1 December 2018. These two transactions enhanced PSG Insure’s footprint across South Africa and is already contributing to the group’s profitability

Western’s comprehensive reinsurance programme reduced the adverse impact of certain catastrophic events that occurred during the second half of the year. This, when combined with its quality underwriting practices, allowed it to achieve an improved net underwriting margin of 8.9% compared to the 8.3% achieved in the prior year.

PSG Insure received top honours at the 2019 Old Mutual Insure Awards and was named overall winner as Top National Broker.

Looking forward, Gouws said that PSG continues to monitor the corporate, political and economic situation, both locally and globally, and the associated impact on the company’s clients and other stakeholders.

“The cash-generative nature of the business gives PSG Konsult several options for funding business growth initiatives and optimising risk adjusted returns for our shareholders,” he said. “As such, the group remains confident about the prospects for continued growth and will continue to prioritise organic growth in our selected markets where we have relatively low, but rapidly expanding, market shares.

“We will continue to focus on initiatives that enable us to service clients in an integrated manner that is seamless and market-leading. Our focus on products, platforms, client service excellence and the quality of our advice process remain key initiatives.”

*African, Coloured and Indian


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