PSG Konsult posted an annual profit thanks to strong performances by its wealth and insurance units, which overshadowed a lacklustre asset management division that ultimately paid the price for not holding index heavyweight Naspers in its portfolios.
The listed investment and insurance holding company, in which PSG group has a roughly 60% stake, said attributable earnings rose 8% to R697.69m in the 12 months to end-February 2021, according to a Sens statement on Thursday. That translated into attributable per share earnings of 52.3c, which was 8% higher than the 48.2c reported the previous year. The group’s total core income rose 4% to R5.27bn.
The results enabled PSG Konsult to declare a final dividend of 16.5c a share, which combined with its interim dividend of 8c took its total dividend for the year to 24.5c a share. The total dividend for PSG Konsult’s 2020 year was 9% above the 22.5c declared the previous year.
“Overall these are pretty good results and shows that they’ve been able to build a business than can perform even in tough times,” said David Talpert, an equity analyst at Avior. “The insurance and wealth businesses did well all things considered — it was just the asset management business that underperformed.”
PSG Wealth saw recurring headline earnings rise 19% from the previous year to R447.66m, while PSG Insure reported a 24% rise in recurring headline earnings to R151.24m. The combined R598.9m in headline earnings from the two units helped offset the 28% drop in profits from PSG Asset Management.
The asset management division reported R104.94m in recurring headline earnings in the financial year, compared to R146.42m the previous year.
“PSG Konsult’s asset management funds didn’t hold Naspers so that has affected their relative performance,” said Talpert. “Their investment style is also very much focused on value investing, which has been out of favour until recently.”
Value investing favours buying undervalued stocks and holding them for a long time on the basis that their solid fundamentals will eventually translate into gains. That strategy has come under pressure in recent years as megacap technology stocks enjoy large weightings on most equity indices.
PSG Konsult CEO Francois Gouws confirmed to Business Day that the company’s asset management division does not hold Naspers, due to its value investing thesis, and that this had affected the unit’s performance.
“Our diagnosis and judgment of what happened [with the asset management business] is that it is a function of their investment strategy, which is value based,” Gouws told Business Day. “We had a view that tech had enjoyed a good run and obviously Naspers falls into that category.”
Naspers has rallied almost 55% since the start of 2020 thanks largely to its 28.9% stake in Chinese internet giant Tencent, held via its international arm Prosus. Cape Town-based Naspers accounts for about a fifth of the JSE’s market value.
Gouws said he continued to back the “very experienced” staff at PSG Konsult’s asset management business and that the company had no plans to shake up the unit.
“There are always periods of outperformance and underperformance in asset management,” he said. “The asset management division underperformed but it makes up about 15% of our [combined divisional] earnings so its performance was more than offset by the wealth and insurance businesses, which did exceptionally well.”
PSG Wealth, which provides wealth management services, saw positive net inflows of R14bn in the financial year. By contrast client assets at PSG Asset management fell 4% to R35.3bn.
Gouws said the group planned to continue expanding organically by growing the market share of its existing business units.
“We’ve got a relatively low market share but we’re very fast growing,” he said. “That’s very exciting for us.”
PSG Konsult also announced that it would be changing its external auditor from PwC to Deloitte based on the recommendation of its audit committee, which was endorsed by its board. The proposed change is expected to take effect from the start of financial year ending February 28 2022 subject to approval by shareholders at its 2021 annual general meeting, details of which are yet to be announced.
PSG Konsult’s shares closed 1.39% higher at R9.50 on Thursday.
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