PSG Konsult (KST) produced a solid 8% recurring headline earnings per share growth and 20.5% return on equity for 2020, despite longer-term structural deficits in the South African economy. These results are to 29 February 2020 and therefore do not reflect the current market conditions.
During the year under review, the firm continued to invest in long-term growth initiatives, given the attractive opportunities it sees for its businesses. It maintained investment momentum in systems and processes (+17% in non-personnel costs) while also continuing to hire top talent (+8% in personnel costs).
“Over the past five years we invested around R1bn (fully expensed) in systems and processes, and it’s only during the current year that we started to see the benefits of lower marginal costs related to client service. Consequently, we expect that the growth in future costs will be at a lower rate,” said CEO Francois Gouws. “It’s a salutary reminder that the benefits from long-term investments take time and require both confidence and patience.”
Given its continued confidence in the company’s prospects, the board decided to approve and declare a final gross dividend of 15.0 cents per share from income reserves for the year ended 29 February 2020 (2019: 13.5 cents per share). Its dividend payout ratio remains consistent with the dividend policy communicated at the time of listing.
PSG Konsult comprises three divisions, namely PSG Insure, PSG Wealth and PSG Asset Management. PSG Insure saw a 43% increase in recurring headline earnings from R85,2 million to R121,6 million over the same period last year, while PSG Wealth enjoyed an increase of 11% from R338,6 million to R376,4 million. PSG Asset Management finished the year with a decrease in headline earnings of -12%, from R167,3 million to R146,4 million.
“Our Insure division’s growth was supported by the Absa Insurance and Financial Advisers acquisition concluded in the prior year,” Gouws said.
PSG Konsult remains strongly capitalised, with a capital cover ratio of 191% based on the latest insurance group return and had no interest-bearing debt at year end. Its strong cash flow enables the firm to continue to invest in long-term growth opportunities, systems and processes, while optimising risk-adjusted returns for shareholders.
Shareholders were advised on 4 December 2019 that the rating agency Global Credit Rating Company upgraded the group’s credit rating. PSG Konsult’s long-term South Africa national scale rating was upgraded to A(ZA) from A-(ZA), while the short-term South Africa national scale rating was revised to A1(ZA), from A1-(ZA) with a stable outlook. This is an independent acknowledgement of the firm’s stability and financial strength.
COVID-19
Most of PSG Konsult’s operations have been classified as an essential service, but 99% of our staff and advisers are working remotely.
“We have a strong balance sheet and excellent liquidity. We take a prudent approach when investing assets backing our regulatory capital requirements; and as such circa 90% of investable shareholder assets are invested in cash, money market or related instruments,” said Gouws.
“The aim is to limit market volatility on our shareholders’ equity and regulatory capital. By way of example the shareholders’ assets declined by less than 1% for the month ended 31 March 2020,” Gouws said.
PSG Konsult is working with various authorities and Regulators to help minimise the impact of COVID-19 on society as a whole and announced today that among other initiatives the firm will donate R10 million to the South African Solidarity Fund.
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