PSG Konsult produces solid results in challenging environment

Leading financial services group PSG Konsult Limited (JSE:KST) today announced its interim results for the six months ended 31 August 2022.

PSG Konsult (the group) delivered a solid performance over the period on the back of its ability to generate new business in a tough trading environment and the significant investments made into the business and its people. The firm generated a 19.8% return on equity and top line revenue growth of 8% for the period, following continued net inflows (R8.3 bn) and growth in insure premiums (8%). It also increased recurring headline earnings per share by 1% over the prior year. This growth was impacted by generally lower securities prices which affected fees on assets under management and performance fees generated.

From a cost perspective the group’s Insure division was adversely impacted by the KZN floods during April 2022, however Western’s comprehensive reinsurance programme cushioned the effect on underwriting results.

According to CEO Francois Gouws, the group’s performance over the period is the result of its core business strengths and its strategy that has paid off repeatedly for shareholders.

“The firm remains confident of its long-term growth prospects, we therefore continued to invest in both technology and people. Compared to the prior six-month period, our technology and infrastructure spend increased by 14% (these costs continue to be fully expensed), while our headcount grew by 7%. We are proud of the progress made in growing our own talent, with 132 newly qualified graduates (93% of whom are ACI candidates) having joined the group since January 2022. A combination of these factors impacted our operating margins to a limited extent. Furthermore, investment income earned on shareholder assets was impacted by negative equity markets during the period.

“The group’s total assets under management are also up by 7% to R317.0 bn over the prior period. This is a strong performance considering the operating environment which has seen the country’s total savings pool shrink by 5.3% in the first six months of 2022, according to recently released ASISA statistics.

“We believe that the firm’s growth is possible as a result of its robust network of advisers, which continues to grow and provide excellent client service levels, and as a result generate value for shareholders.”

Results at a glance

PSG Wealth continued its commendable performance and increased recurring headline earnings by 13% during the period. The division’s core income increased by 11% during the period, consisting of a continued increase in management and other recurring fees, while transactional brokerage fees increased marginally compared to the prior period.
Clients’ assets managed by Wealth advisers increased to R275.1 billion, which included R8.3 billion of positive net inflows during the period.

PSG Insure’s recurring headline earnings decreased by 17% due to the adverse impact of the KZN floods, which was classified as a catastrophe event, and lower investment returns on shareholder assets. Despite this, Western achieved a net underwriting margin of 10.9%, compared to the 14.1% achieved in the prior period, due to quality underwriting practices and comprehensive reinsurance.

PSG Asset Management grew assets under administration to R176.5 billion, supported by R5.9 billion of multi-managed net inflows. Client assets under management amounted to R41.9 billion as at 31 August 2022, with net client inflows of R0.9 billion during the period, offset by negative market movements.

The division’s results in the period were impacted by lower performance fees, however, management fees increased by 13% during the period. The division’s long-term investment track record continues to improve with most funds performing in the top quartile over a three-year period.

Capital management

PSG Konsult continues to generate strong cash flows, which provides the group with optionality to optimise its capital structure and risk-adjusted returns to shareholders.

The group remains well capitalised with its capital cover ratio increasing to 238% (2021: 233%) based on the latest insurance group return, and exceeds the minimum regulatory requirement of 100% by a substantial margin.

During July 2022, Global Credit Rating Company affirmed the group’s long-term and short-term credit ratings at A+ (ZA) and A1(ZA) respectively, with a Stable Outlook.

The increase in the group’s capital cover ratio and the credit rating affirmation is testament to the group’s strong financial position and excellent liquidity.

The group also repurchased and cancelled 14.7 million shares at a cost of R175.7 million during the period as part of shareholder capital optimisation.

Dividend declaration

The PSG Konsult board declared an interim gross dividend of 11.0 cents per share from income reserves for the period ended 31 August 2022 (2021: 10.0 cents per share), reflecting the group’s sound financial position and confidence in its prospects. The group’s dividend pay-out ratio remains between 40% to 50% of full year recurring headline earnings excluding intangible asset amortisation.

Looking ahead

Looking ahead, Gouws says the group remains confident about its strategy and it will continue to invest in the business to secure its prospects for long-term growth. He reminds investors evaluating the group’s prospects for the ensuing six months that the comparative period (H2 2022) included further performance fees and a release of the remaining pandemic business interruption claims provision.

“We will continue to monitor local and global events, and the associated impact on the group’s clients and other stakeholders. The group has a clear strategy in place, which is being executed by an experienced management team who knows what is required to keep delivering expectation-beating growth for our shareholders. We remain focused and committed to this task. Our business fundamentals also remain strong, and we are well capitalised, and therefore confident in our ability to sustain growth going forward.”