Stellenbosch-based investment group PSG is likely to use an expected bumper special dividend from agribusiness subsidiary Zeder to reduce debt.
Though PSG is not excessively geared, PSG CEO Piet Mouton — at an interim investor presentation last week — said reducing the group’s debt of about R1.55bn would create financial flexibility to pursue new opportunities.
PSG, which holds a 41% stake in agribusiness investor Zeder, expects to receive a special dividend of between R1.9bn and R2bn early in 2020. The potential windfall will follow Zeder’s sale of its strategic stake in JSE-listed consumer brands conglomerate Pioneer Foods to food and beverages multinational PepsiCo. The deal, which still has to clear some regulatory hurdles, is expected to be finalised in February next year.
Mouton indicated that there were also opportunities to reinvest in PSG’s existing investment portfolio, which includes listed investments such as banking group Capitec, financial services hub PSG Konsult, Zeder as well as private education businesses Curro and Stadio. At present, PSG’s investment portfolio is heavily skewed towards Capitec, which accounts for about 70% of the total value.
But Mouton made only a veiled reference to a possible new large investment. “Something might well come around in the current environment.”
Mouton indicated that consideration would also be given to mobilising some of the Zeder dividend to buy back its own shares. But he stressed this depended on the discount that the share price offered on PSG’s sum of the parts (SOTP) valuation. On Friday, the PSG share offered a discount of roughly 23% on the latest SOTP value of about R303 a share.
The discounts the market applies to traditional investment holding companies have widened markedly over the past 12 months, and discounts of more than 40% are not uncommon among the smaller counters. At the current discount, a buyback might not be the most prudent option. Mouton indicated that analysis shows that a R2bn share buyback might only improve PSG’s SOTP marginally.
Market watchers will also be keen to see if PSG mobilises a significant portion of the Zeder dividend to its promising unlisted investments held in subsidiary PSG Alpha. PSG Alpha is regarded as the nursery for growing PSG’s next investment, and investments such as fast-growing retirement village group Evergreen and power management expert Energy Partners have already caught the eye.
While PSG has enjoyed huge success in nurturing early-stage companies such as Capitec Bank and Curro into juggernauts in their respective industries, Mouton admitted most of the PSG Alpha “growth” companies were behind on their internal targets.
PSG’s investment presentation showed that Evergreen had set an ambitious target of 13 operating villages with 4,000 life-right units by 2024 in Cape Town, Johannesburg, Durban and Port Elizabeth. These properties would have a value of about R10bn. The 10-year target to 2029 pencilled in more than 22 operating villages with 10,000 life rights holders. PSG estimated the gross value would be in excess of R30bn.
On Energy Partners, PSG said the independent energy producer’s investment portfolio is gaining traction. The group said cumulative assets are closing in on the R300m mark with the contracting of R200m in additional assets in progress. PSG forecasts that Energy Partners will hold cumulative assets worth close to R400m by April 2020.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.