PSG Group’s “Project Value Unlock” has seen the legendary investment company unbundle a portfolio of shares before it will delist the rump with a cash offer later this month. If you were holding PSG Group, your brokerage account now has a range of other shares in it, and this naturally leads to the question: which ones should I keep?
While investor and portfolio context are important for any decision to made (i.e. make decisions that suite your circumstances), I can touch on each company unbundled by PSG Group to perhaps help these decisions.
PSG Konsult (KST): Wealth manager with asset management & insurance
Built from the clever consolidation of small town financial services into a nationally-strong, broad wealth offer, PSG Konsult is a success story with sticky clients and good margins. Over the years, the Group has added asset management (with a value investment philosophy) and an insurance arm. The former has been reasonably successful while the latter is the fastest growing vector in this group right now. PSG Konsult currently trades on a Price Earnings (PE) of 15.5x and Dividend Yield (DY) of 3%.
Curro Holdings (COH): Low-to-mid-market private schooling
From a phenomenal growth period, Curro has grabbed a large share of the private schooling market in South Africa. More recently, though, Curro has halted its new investments and focused on filling its existing capacity as it seeks to drive its currently low return on its capital while navigating the challenges in private schooling at the lower-end of the market. On the latter point, low-LSM affordability has taken a hit in the last two years and Curro’s bad debts have suffered (though they improved from the troughs in the last results). Curro currently trades on a PE of 20x and DY of 0.8%.
Stadio Holdings (SDO): Predominantly-online tertiary institution
Itself unbundled from Curro, Stadio is a tertiary-focused holdings company that was initially built acquisitively. From this base, Stadio has been consolidating its offering, expanding its educational portfolio (and pipeline) and growing its student base quickly. Stadio currently trades on a PE of 19x and DY of 1.3%.
Relevant for both Curro & Stadio, see my previous article comparing the private education markets listed on the JSE.
Kaap Agri (KAL): Predominantly-Western Cape agri-supplies, rural & fuel retailer
Originally a co-op, Kaap Agri has built out a retail offering from its rural Western Cape base serving farmers and the farming communities around them. While the Group’s credit sales drive debtors book as a large balance sheet line item, the Group has benefited from recent good harvest and soft commodity pricing buoyancy. The Group has also progressively moved into fuel retailing while trying to flesh out its retail offering in product, focus and geographic reach. Kaap Agri currently trades on a PE of 7.8x (though note the large credit risk embedded in its debtors book) and DY of 4.1%.
CA Sales Holdings (CAA): SADC consumer goods distributor
Formerly listed on the JSE, CA Sales delisted years ago. A distributor of cigarettes, alcohol and a long list of other FMCG products across SADC (predominantly in Botswana where a little over half of its revenue is generated), CA Sales relisted on the JSE in anticipation of the PSG Group’s unbundling of its shares. It appears well managed and has an impressive range of blue chip clients that its services. CA Sales currently trades on a PE of 9.7x and has not paid a dividend yet since listing on the JSE.
Which shares should I keep?
Investor and portfolio context are everything, but in my opinion only PSG Konsult and Stadio are worth keeping for the long-term. The former has sticky assets, high margins and long-term runway while the latter is in a real sweet spot left vacant by our public sector and stands to gain from some key regulatory developments (i.e. private universities).
Curro has a long way to go to justify its invested capital while its target market is more effected by inflationary pressures than most. Kaap Agri’s massive debtors book is one correlated credit event (e.g. a totally failed Western Cape crop) from a disaster and, perhaps, the real reason why the stock will probably never re-rate to a high PE. Finally, CA Sales Holdings is an intriguing one but a very illiquid stock and a business operating in an industry with low barriers to entry that will naturally cap its long-term margins and returns on capital. In closing, PSG Group’s “Project Value Unlock” has boldly shifted the value from an HoldCo discount into your personal brokerage account. Now it is up to you to maximize it.
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