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PSG Konsult (KST) delivers a solid 8% growth in recurring headline earnings per share and a return on equity of 20.2%

11 October 2019 PSG Konsult

Announcing PSG Konsult’s interim results to the end of August 2019, CEO Francois Gouws said that in the past six months the firm pushed forward aggressively on its strategic goals despite low business confidence, and the political, economic and climate uncertainty that beleaguer South Africa and the global community. “Of that I am very proud.”

The firm achieved a solid 8% growth in recurring headline earnings per share and generated a return on equity of 20.2%. A dividend of 7.5 cents per share was declared from income reserves (2018: 7.0 cents per share), which represents a 7% increase from the previous interim period.

No performance fees were generated during the current period, compared to the prior period where they constituted 4.6% of headline earnings. The group continued its investment in technology and people.

Gouws said that PSG Konsult is committed to providing great outcomes for its clients. “We’re focusing on simple to use, stable, client centric solutions on a platform that is geared towards a rapidly changing future business environment. The results should be a great digital experience for our clients and advisers.”

During the period under review the firm’s local stockbroking platform was upgraded by implementing and adopting IRESS, a world-renowned trading and portfolio management system.

Assets under management
The firm’s total assets under management decreased marginally to R228.1 billion, comprising assets managed by PSG Wealth of R184.5 billion and PSG Asset Management of R43.6 billion, while PSG Insure’s gross written premium increased by a very healthy 35% to R2.7 billion.

Divisions
PSG Wealth achieved recurring headline earnings growth of 10%. “This is pleasing in the context of the difficult prevailing economic and market conditions.” The division’s overall revenue increased by 8%, consisting of an increase in management and other recurring fees of 8%, while transactional brokerage fees also increased.

Clients’ assets managed by PSG Wealth advisers increased by 6% to R184.5 billion, which included R5.3 billion of positive net inflows. During the period, 25 new wealth advisers were appointed, bringing the division’s formidable financial adviser network to 549 individuals.

“The fundamentals and prospects of this division give us great confidence, and we believe that our commitment to securing long-term relationships with clients will continue to differentiate us in the markets we compete in.” By way of demonstration, the division was recognised as the Top Wealth Manager of the Year: Large Institutions at the Intellidex Top Private Banks and Wealth Managers Awards during June 2019. The division also won the Successful Entrepreneur and Young Professional archetype categories.

PSG Asset Management’s results were impacted by challenging market conditions. Its recurring headline earnings decreased by 7% due to challenging market conditions which resulted in no performance fees being earned. Although shorter-term investment performance was below benchmark, the division’s long-term track record of delivering top-quartile risk-adjusted investment returns for clients remained intact. Client assets under management decreased by 8% to R43.6 billion, mainly due to market movements and marginal net client outflows of R37 million. Assets administered by the division increased by 3% to R121.2 billion, having been further bolstered by R4.3 billion of multi-managed net inflows.

PSG Insure achieved recurring headline earnings growth of 50%. “We’re very pleased with this achievement, which was bolstered by the successful integration of the recent Absa Insurance and Financial Advisers (AIFA) acquisitions and robust underwriting results.” Gross written premium growth of 35% was achieved and the division continued to focus its efforts on growing the commercial lines side of the business, which requires specialist adviser expertise.

No significant catastrophe or other related events impacted PSG Insure during the period. “When combined with our quality underwriting practices, this allowed us to achieve a commendable net underwriting margin of 10.4% compared to the 10.5% we achieved in the prior period.”

Capital management
PSG Konsult is strongly capitalised and complies with the Prudential Authority’s Financial Soundness Standards, with a capital cover ratio of 1.82. “Our strong cash flow allows us to use several options to optimise risk-adjusted returns for our shareholders,” said Gouws.

Aligned to this objective, the group decided to negotiate the early redemption of the R100million notes issued under the Domestic Medium-Term Note programme. The notes were redeemed on 12 July 2019, utilising surplus cash, and the group therefore has no remaining interest-bearing debt at 31 August 2019. To minimise the impact of share issue dilution, the PSG Konsult Group Share Incentive Trust purchased 12 585 068 PSG Konsult shares at a cost of R122.1 million, during the current period to enable it to satisfy certain of its obligations in terms of the share scheme.

Looking forward
We continue to monitor the corporate, political and economic environment both locally and globally, as well as the increasing risks posed by climate change and the associated impact of all these factors on our 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. As such, the group remains confident about the prospects for continued growth.

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