GCR affirms a rating on PSG financial services

19 September 2014 PSG

Global Credit Ratings (GCR) has today affirmed the national scale ratings assigned to PSG Financial Services of A (ZAR) (single a) and A1 (ZAR) (single a one) in the long term and short term respectively; with the outlook accorded as Stable.

According to GCR, PSG Financial Services has demonstrated a strong track record of investing in companies to the point where they can be listed and ultimately become leaders in their industries.

“This has been demonstrated through the sustained rise in the sum-of-the-parts valuation to top R20bn at FYE14 (before funding). While Capitec Bank’s (“Capitec”) valuation declined slightly, value enhancement was driven by increases from Curro Holdings (“Curro”) and PSG Konsult, as well as generally positive movements in some of the smaller investments,” said Eyal Shevel, Head of Corporate Ratings at GCR.

Recurring headline earnings rose 14% to R818m in F14, driven by strong growth from PSG’s four core investments. However, earnings pressure was experienced by some of the smaller investments, impacted by the weaker operating environment.

“Nevertheless, strong dividend inflows from Capitec and to a lesser extent PSG Konsult have been utilised to support growth in Curro and Zeder Investments. Whilst Curro requires further investment in F15, the other large businesses have sufficient internal cash resources,” said Shevel.

PSG reported an increase in debt to R3.7bn at FYE14 (FYE13: R2.4bn), which mostly relates to underlying subsidiaries and has no recourse to PSG. “At group level PSG is conservatively funded through the use of perpetual preference shares, with the only debt comprising R615m in redeemable preference shares at FYE14” said Shevel. PSG has also issued over R1bn in fresh equity capital since June 2014 to ensure it has sufficient capacity to invest in new opportunities that may arise.

“Positive rating action could derive from more balanced cash flow generation across group companies, reducing the reliance on Capitec. Particularly when Curro becomes cashflow positive, this would see group cash generation improve, while reducing cash absorptions. Conversely, while Capitec remains well capitalized it is facing a much more challenging operating environment. To the extend this affects dividend flows to PSG, it could have a negative impact on the rating,” concludes Shevel.

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