PSG on the prowl for opportunities

PSG did not receive the memo that South African business is in a state of stagnation.

At its annual general meeting (AGM) on 23 June, it announced that two listings were in the pipeline, and that it remains in expansive mode and on the lookout for high-growth opportunities in South Africa. 

On 26 June agriculture and fuel retailer and trader Kaap Agri, 39.8%-held by PSG’s agri group Zeder, listed on the JSE, and around November Curro’s tertiary education spinoff Stadio will debut on the same exchange. 

PSG CEO Piet Mouton spoke about the success PSG has had with companies like Curro, Capitec, Zeder and financial services group PSG Konsult, adding that investment arm PSG Alpha is there to find the next big growth investment. 

“We are long-term investors and we have no fixed exit in mind. We are strong in financial services, education and food and agri, but what differentiates PSG significantly is our ability to invest early in companies and build them with the management teams, giving them the freedom to build their dreams.” 

It is hard to fault its strategy. PSG Konsult started off with a few people and a big idea, and now has R175bn under management and boasts a 25% compound annual headline earnings growth. Capitec, Mouton said, “changed back-alley microlending” and is now a hugely successful bank.

PSG invested in Curro when it had three schools. It now has 127 school buildings accommodating 47 000 learners, a compound annual growth in headline earnings of 58% since 2012, and a compound growth of 42% in value since listing in 2011.

 ‘The best management team in the country’

The group’s core investments – Capitec, Curro, PSG Konsult, and Zeder – “all have the best teams, but low market shares and appropriate gearing, so there are growth opportunities,” Mouton said. 

The 30%-held Capitec remains “the kingmaker” in PSG, and in the past year it gained 1.3m clients. Over 10 years, headline earnings have grown at a compound rate of 37% a year and net transaction fees by 60%. 

“We love this investment,” Mouton said. “It has by far the best management team in the country.” It has relatively low market share, particularly with higher income clients. “With the launch of its credit card, we believe there is significant growth [potential] in banking and lending.” 

PSG believes in entering new markets with smaller investments. Borrowing from Capitec founder Michiel le Roux, who had said Capitec would “either be a big success or a small failure”, Mouton said the PSG strategy of investing small means that “if it fails, it fails small – and if it makes it, it makes it big”.

With R1.7bn cash on hand, PSG is exploring one or two such investments.

Some of its smaller investments have fared well. FutureLearn, which is in home education and tutoring, has 17 000 learners and is growing. ITSI, in digital learning technologies, already serves 74 000 learners in 180 schools and is expanding in the UK, UAE and Australia. 

Stellenbosch Nanofiber Company has the ability to increase the speed of nanofibre production at a fraction of the cost and is hoping to make inroads into the healthcare and energy sectors.

Growth potential

One of the group’s investments which may have significant growth potential is tertiary spinoff Stadio, which just made two acquisitions in quick succession – the South African School of Motion Picture Medium and Live Performance (Afda) and Southern Business School (SBS).

Curro CEO Chris van der Merwe, who retires at the end of June and becomes CEO of Stadio on 1 July, seems intent on replicating the Curro growth story again at Stadio, which will become a “multiversity”.  

“There are a lot of great brands that play in the private tertiary space but they are isolated. If they can be brought together, we can build a successful multiversity – a large and diverse institution of higher learning to educate for life and a profession and to grant degrees.” 

He said Stadio will be “Curro number two – a natural next business stage, but also an investment company that buys brands”. 

Van der Merwe, who said the listing was expected in the final quarter of this year (Mouton was more specific, saying November), said Stadio would offer under- and postgraduate programmes and will select the higher certificates and degrees that will “give people a real chance of getting a job”. 

Stadio already had teacher-training college Embury and has recently added Afda and SBS. “At listing we will have 13 000 students,” he said, adding that “acquisitions are always in the offing”.

The strategic intent, he said, is to optimise existing facilities, grow brands and seek acquisitions. It will build niche universities of between 2 000 and 4 000 students. 

It will develop user-friendly, efficient, uncomplicated distance learning, and is investing heavily in designing systems.  

The Stadio listing will follow that of Kaap Agri, which got off to a good start. But it is really Stadio’s listing that investors are likely to get excited about. Judging by Curro’s successes, investors are going to expect similar growth and expansion from Stadio.

PSG has produced Capitec and Curro, two of the country’s fastest-growing new companies of the past few decades. Whether it can repeat this kind of growth in other investments remains to be seen. 

At the AGM Mouton warned shareholders that while PSG has delivered “exceptional returns”, with total returns of 48% compound per annum over its 22-year history, it would be difficult to achieve that rate of growth over the next 20 years. 

This article originally appeared in the 6 July edition of finweek. Buy and download the magazine here.