As PSG's stake in Capitec falls, it's increasing its interest in private schooling group Curro

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Piet Mouton, CEO of the PSG Group.
Piet Mouton, CEO of the PSG Group.
Hetty Zantman
  • The PSG Group published its results for the six months ended August 31 on Thursday.
  • The company revealed it has further reduced its stake in Capitec and increased its interest in Curro.
  • The change in PSG's investments, brought about chiefly by the unbundling of Capitec, also brought big changes to its earnings.

After reducing its stake to just 2.8% in banking group Capitec, the PSG Group decided to invest more in Curro, increasing its stake in the private schooling group to 60%.

The company founded and led by the Mouton family said in its interim results announcement on Thursday morning that, after the unbundling of Capitec on August 31, it disposed a further 0.2% interest in the bank for R212 million in cash.

As its stake in Capitec was dropping, the company subscribed to more Curro shares during a rights issue that concluded in early September, increasing its interest in the schooling group to 60% from the 55.4%.

While Curro has had a tough 2020 as falling incomes caused many parents to fall behind in their school fee payments or take their children out of private schools entirely, it still managed to record a 9% increase in recurring headline earnings per share for its six months ended 30 June 2020.

PSG CEO, Piet Mouton, has been supportive of Curro, underwriting a bulk of the R1.5 billion right offer that the schooling group needed to reduce its debt and raise capital for possible acquisitions.

"There were significant uncertainties in the market when we launched this [rights issue]. Schools were closed…But it has given Curro fire power to take advantage of the situation and maybe make one or two large acquisitions," said Mouton during Capitec's results presentation, adding the increase in PSG's stake appears to be "the right transaction" for the company.

Earnings affected by Capitec unbundling

The change in PSG's investments, brought about chiefly by the unbundling of Capitec, also brought big changes to its earnings. For the six months ended August 31, the company reported earnings per share of R118.62, an 18-fold increase from the R6.39 it recorded in August 2019, thanks to once-off gains that resulted from the unbundling.

At the same time, the company plunged to a headline loss per share of R14.14 compared to headline earnings of R5.68 in 2019, mainly because of the decrease in the share prices of PSG’s listed investments, which include PSG Konsult, Curro and Zeder Investments.

PSG has had to change the way it calculates its profits after the unbundling. It says sum-of-the-parts (SOTP) – a method that assesses the value of each of its investee companies to measure profits – is now a better measure of its performance than recurring earnings.

The group's SOTP value stood at R75.86 at the end of its six months period to August, increasing slightly to R82.80 per share by October 9. Nevertheless, this was still 12% lower than the R94.44 per share the group reported at the end of its financial year in February 2020.

PSG blamed the decline in its SOTP value on depressed equity markets and the challenging trading conditions brought about by the Covid-19 pandemic and the lockdown.

Massive share price discount

Despite an increase in the SOTP value, PSG's share price shows that the market remains sceptical, a phenomenon that's affecting most investment holding companies in the JSE.

At R47 per share, PSG is trading at roughly a 43% discount to its SOTP value per share. Mouton said on Thursday that the discount remains a concern to the group, but PSG will continue addressing this by growing the underlying investments and finding ways to unlock value.

"Trading at a discount is an issue for investment companies globally and it seems that the 'investment company model' has fallen out of favour," he said.

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