Investment heavyweight PSG Group flagged a 20% drop in the value of its underlying assets, reflecting relatively weak equity markets in an economy that was trapped in one of its longest recessions in decades.
PSG, which has grown rapidly from a small venture capitalist-style investment holding company in 1995 into a R11bn must-have in fund managers’ portfolios, said the sum of its parts was likely to be R75.86 per share in the six months to the end of August compared with R94.44 a year earlier.
Share prices of its two biggest businesses, financial services group PSG Konsult and private education operator Curro Holdings, have been under pressure during the period, falling more than 11% and 37% respectively, as investors pulled back from risky assets while the economy wallows in recession.
But the valuation of PSG’s businesses is at a discount of almost 40% to its share price, which closed 2.3% lower at R47.25, which values the company at R11bn.
The shortfall suggests the same ghost might be back to haunt the company, which solved that problem by spinning off the bulk of its 32% stake in Capitec to shareholders earlier in 2020.
The discount, common but unwelcome in investment holding companies, could give investors no reason to buy into its listed businesses, which could be cheaper if held via PSG. The company will issue its first earnings report after the spin-off of its Capitec stake on Thursday. At the end of February the group had a sum-of-the-parts value of R60.3bn, with Capitec making up R46.13bn of this amount.
On Tuesday, according to information on PSG’s website, the value of its underlying businesses was worth R18.3bn, with PSG Konsult accounting for roughly a third of that, while its stake in Curro represented nearly 20%. PSG’s shortfall largely reflects a headache faced by Naspers.
At times, the Naspers stake in Tencent was 40% more than the group’s market capitalisation.
Naspers tried to fix that by spinning off its pay-TV business MultiChoice and hiving off and separately listing its global ecommerce business, Prosus, in Amsterdam.
African Rainbow Capital, the investment holding house backed by Patrice Motsepe, Remgro and Sabvest are in the same boat.