EDITORIAL: What’s next after PSG’s bold and laudable Capitec move?
CEO Piet Mouton would do well to close the many entry points and develop another winner
As SA’s investment heavyweight PSG unveiled details of plans to reduce its holding in fast-growing banking group Capitec to a minuscule stake, CEO Piet Mouton deserves a toast.
Founded shortly after the end of apartheid in 1995, PSG has grown rapidly from small venture capitalist-style investment holding company into a R40bn must-have in portfolios of fund managers that challenge entrenched players in financial services and private education.
PSG has had a solid run since Mouton replaced his father, Jannie Mouton, as CEO in 2010, rising nearly eight-fold on the JSE thanks to its 32% stake in Capitec. The bank is itself one of SA’s biggest corporate success stories, making it to the upper echelons of SA’s banking industry two decades after Mouton Snr built it from the acquisition of two microfinance outfits serving consumers shut out of the formal banking system.
The stake makes up almost 80% of PSG’s valuation, giving Mouton a nice-to-have corporate headache. Hiving off Capitec would rob the company of a steady flow of dividends to invest in upcoming businesses, but it would also be met with excitement by shareholders, who have been pushing the company to release value trapped in the valuation gap.
Mouton’s problems mirror the dilemma faced by Naspers, where its stake in Tencent at times ended up being 40% more than its market capitalisation. Naspers tried to fix that by spinning off its pay-TV business MultiChoice and hiving off and separately listing its global e-commerce business, Prosus, in Amsterdam.
African Rainbow Capital, the investment holding house backed by Patrice Motsepe, is in the same boat. The value of underlying assets, which include a stake in Alexander Forbes and data cellphone company Rain, dwarf the company’s market capitalisation by three-quarters.
With the Capitec unbundling, the details of which were announced late on Wednesday, PSG investors will be proportionally handed roughly 28% of Capitec shares, which are about more than one-third cheaper if held via the parent company. It is something to smile about for long-term investors who have watched as others used PSG as a proxy to its prized asset.
It is also a bold but laudable move by Mouton, who told this newspaper this was not an easy decision. Capitec is PSG’s money spinner, contributing more than three-quarters to the company earnings and accounting for almost 70% of its portfolio, which also includes private education group Curro and asset manager PSG Konsult.
It is true that Mouton was pushed into making the deal by new legislation that may deem PSG a financial conglomerate, a development that would increase its compliance burden and stifle its ability to operate as a dynamic and nimble investment holding company.
Still, he could have held onto Capitec, raked in performance bonuses, retained PSG’s appeal to investors and dismissed shareholders crying out for strategic moves to release value trapped in the structure. With R2bn in cash, half of which would be used to pay off debt, the 43-year-old took a commendable step in the production of his own show, as investors attribute the success of PSG to his father’s knack for identifying start-up companies with exciting potential.
Now that he is about to help PSG break the shackles of being regarded as nothing more than a proxy to Capitec, Mouton must focus his attention on two things: first, close the many entry points into PSG to prevent the old ghost from coming back to haunt him; and, second, develop the next Capitec.
Buying out minorities in Curro, a R3bn low-priced private education group targeting middle-class parents fed up with overcrowded and underfunded public schools, and PSG Konsult, a R10bn wealth and asset manager, might help as the two publicly traded companies together will make up about half of the company’s portfolio post the unbundling.
Though there’s no rush to close the entry points or find the next Capitec, Mouton does not have the luxury of low expectations after taking over from a man who drew comparisons with Warren Buffett.