There might have been a time, in the not too distant past, when the market eagerly awaited the results of the adventurous PSG Group. But these days — with more than 90% of the sum-of-the-parts (SOTP) value made up of a handful of listed investments — the likelihood of a surprising development is remote.
At last count, PSG’s 35.5-million shares in Capitec Bank accounted for a whopping 70% of the SOTP value.
The Capitec stake of about R48bn not only overshadows PSG’s other investments but also makes it really difficult to make investments that will move the needle.
The controlling stakes in private education businesses Curro and Stadio these days account for just 7% of the SOTP, while financial services group PSG Konsult accounts for just 10%. Agribusiness Zeder is 5% of the PSG SOTP value, but will be considerably smaller once it pays out the special dividend from the sale of its stake in Pioneer foods to PepsiCo next year.
In short, this (albeit thanks to the enormous success of Capitec) is not a balanced portfolio, and it’s difficult to refute increasingly audible contentions that PSG is nothing more than a proxy for Capitec.
This is probably a touchy subject, but it might be worth asking whether there is an opportunity to unbundle the stake in Capitec?
Older market watchers will remember that way back in 2002 PSG unbundled its controlling stake in Capitec. The decision was almost instantly regretted and PSG was fortunate enough to claw back an anchor shareholding in the fast-growing bank.
Circumstances have, however, changed, and Capitec is now a more mature operation facing new competition. Risks aside, PSG might also see merit in not having its promising smaller holdings left on the periphery.
Diversified residential fund may just be the ticket
In a commercial property market starved of listings, people need to get creative if they want to take portfolios public.
One possible type of listing that could gain traction is a diversified residential fund. SA’s cities face housing shortages, prompting private and listed companies to develop new housing and to convert old offices into residential assets. The problem with the residential offerings on the JSE so far has been their size and that they are focused on specific property segment.
A diversified residential fund would more likely find itself on the radar of institutional investors as it would likely be larger with more units in its portfolio.
Two specialised residential funds, Indluplace Properties and Transcend, were listed over the past few years but both have struggled to grow and attract the attention of large institutions. Both invest in rental housing priced at between R2,000 and R8,000 a month.
The funds lack liquidity and their market capitalisations are both below R2bn making them two of the smaller property companies on the JSE. Institutions and pension funds tend to invest in funds with a market capitalisation of at least R5bn and many have been encouraging consolidation such that R10bn becomes a marker for smaller funds.
With this in mind, a smart fund manager would consider putting together a residential fund with varied types of housing assets. This could include suburban rental apartments priced from R2,000 to R12,000; and inner-city housing.
There could even be a student-housing component to new listings. The student housing would range from entry level accommodation, priced at about R2,000 a month to high-end student accommodation priced upwards of R10,000 a month.
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