PSG Konsult’s growing cash pile

The outstanding feature of PSG Konsult’s interim results published on Thursday for the six months to end-August 2022 is not that the group of insurance, investment and asset management businesses performed relatively well in a period of severe market volatility, but that it continues to generate copious amounts of cash.

PSG Konsult’s cash flow statement shows that it generated R825 million in cash from operating activities in the past six months, compared to R505 million in the first six months of the previous financial year.

In fact, net operating cash flow in the last six months exceeded the R758 million of the 2021 financial year.

Nor was the cash wasted. PSG Konsult used some R33 million for acquisitions and returned more than half a billion rand to shareholders in the way of dividends and the repurchase of shares. Even after distributing R292 million in dividends and R175 million worth of share repurchases, cash and cash equivalents increased to nearly R2 billion at the end of August.

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That is a lot of money, prompting the question of what PSG Konsult plans to do with it.

CEO Francois Gouws says R108 million has been used to repurchase shares since the end of August and that PSG Konsult has actually increased distribution to its shareholders by increasing the interim dividend by 10% while earnings creased by only 1%.

“There are benefits to holding excess cash at the moment. It gives us the means to take advantage of opportunities that might come along in a difficult market,” he says.

Gouws would not be drawn on the possibilities that investors are bound to be looking at PSG Konsult to do deals as investors might regard it as the new PSG flagship after PSG Group unbundled all of its assets to its shareholders quite recently.

“PSG Konsult has been operating independently from PSG Group for [a] long [time] and, sentiment aside, we have been independent for years,” he points out.

Francois Gouws, CEO of PSG Konsult. Image: Supplied

PSG Konsult notes that the unbundling from PSG Group in September 2022 resulted in 45% of the shares now being held by institutional shareholders – an indication of confidence, and equally exceptional expectations.

The group’s shareholder base has increased from 5 500 shareholders to over 19 000.

Personal touch

A closer look at the income statement shows that all the line items moved in the ‘right’ direction, with a notable exception being marketing, administration and other costs. These increased by nearly R100 million.

“Yes, the increase is significant,” says Gouws, “but it only returned to normal.”

The increase is attributable to an increase in costs of connecting to clients face to face. It includes PSG Konsult’s analysts, advisors and portfolio managers that have been travelling to do presentations and speak to clients and investors.

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“You can only talk to clients using technology so much. We are back out there,” says Gouws, referring to road shows, renting venues and giving clients updates on the markets, snacks and a glass of Leopard’s Leap Chenin Blanc.

A distraction in the income statement is that income from the insurance operations declined significantly.

“The group’s insurance division was adversely impacted by the KwaZulu-Natal floods during April 2022,” says Gouws. The impact was only partly offset by reinsurance, resulting in PSG Konsult cushioning a net loss of nearly R345 million.

AUM up to R317bn

“PSG Konsult remains confident of its long-term growth prospects. We continue to invest in both technology and people,” says Gouws.

“The group’s total assets under management [AUM] are also up by 7% to R317 billion over the prior period. This is a strong performance, considering the operating environment which has seen the country’s total savings pool shrink by 5.3% in the first six months of 2022, according to recently released statistics by the Association for Savings and Investment South Africa.”

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“We believe that the firm’s growth is possible as a result of its robust network of advisors, which continues to grow and provide excellent client service levels, and as a result generate value for shareholders,” he adds.

“We will continue to monitor local and global events, and the associated impact on the group’s clients and other stakeholders. The group has a clear strategy in place, which is being executed by an experienced management team who knows what is required to keep delivering expectation-beating growth for our shareholders.

“We remain focused and committed to this task. Our business fundamentals also remain strong, and we are well capitalised, and therefore confident in our ability to sustain growth going forward,” says Gouws.

Listen to PSG Konsult CFO Mike Smith speak about the group’s latest financial performance: