Building a financial services company (1995 — 1998)
On 25 November 1995, the founders and executive management acquired control of the personnel consultancy PAG Limited with a market capitalisation of R7 million, at a price of 36 cents per share. The stock exchange brokerage, Professional Securities Limited (“PSG”), in which PAG held a 50% interest, commenced business on 2 March 1996. In the annual report of 1996, the new PAG management announced their intention to transform the personnel placement company into a full-fledged financial services group.
Having sold the personnel placement business, the name of PAG Limited was changed to PSG Group Limited at the annual general meeting held in May 1997. In the 1996/97 financial year, PSG Group established itself as a niche player in the financial services sector.
In the years that followed PSG consolidated this position, following a clear strategic plan. The focus fell primarily on:
- Market segments that were growing, or had significant growth potential
- Investing in cash-generating companies instead of capital-intensive industries
- Start-up and greenfield operations instead of mature companies
- Supporting creative entrepreneurs instead of professional managers
- Investing in leaders with flair
Faced with a substantial downturn in local and international markets, coupled with the A2 banking crisis in South Africa that led to the sale of PSG Investment Bank to Absa in 2003, PSG’s share price dropped from R18 in 1998 to R2,40 in 2003. The challenges were endless, but management continued to learn from the setbacks and to find new ways to build profitable, sustainable businesses. One of the most successful projects initiated during this period, was the establishment of Keynes Rational, which later became Capitec Bank Limited.
Project Unlock Value (2002 — 2004)
In 2003, management launched Project Unlock Value. At that stage, PSG was trading at a discount to net asset value. It was an undesirable situation and therefore a project to unlock this discount was initiated – mainly by turning net asset value into cash. The investment in Capitec was unbundled and distributed with surplus cash to shareholders through dividend in specie and special cash distribution of R3. Investors were however encouraged to reinvest this cash in PSG shares. The total return index (figure 1) proves that investors who followed this advice achieved excellent returns on their investments in PSG.
Project Growth (Currently)
In 2004, investors were invited to come on board for Project Growth. Management’s attention was focused on achieving real growth in earnings and further improving the group’s return on equity (ROE). From a reported ROE of 8% in February 2003, an ROE target of 20% was set for 2004/05. We comfortably exceeded this target, achieving an ROE (using base headline earnings per share) of 23% in 2004/05 and 24,2% in 2005/06. In 2006 we were able to report that “well-planned strategic moves and the innovation and hard work of the PSG staff and management have enabled us to capitalise on positive trends in our operating environment”.
Creating value
Our primary goal has always been to create value for shareholders, and we invite our shareholders to judge our performance by our ability to deliver consistent returns on their investments. We have had remarkable success in achieving this objective.
Figure 1 reflects the total return index for an investor who bought PSG shares for R35 on day one
of the management buy-out (on 25 November 2005), who reinvested all dividends and kept the
Capitec shares obtained through the unbundling of PSG’s Capitec shares in 2003. The investor
would have enjoyed compound growth of 60% between November 1995 and
February 2008.
February 2008.
The returns are generated by a small but loyal staff. Many of the employees have been with the group since inception of its relevant businesses and still remember some of the first experiences as a maverick stockbroking outfit in Johannesburg and the small beginnings (and scant furniture!) of the first offices in Cape Town. The majority of PSG shares are owned by PSG management, directors, friends and family. This close association between PSG as a company and the people who are responsible for its growth is considered an essential driving factor behind its success.
Seeking new opportunities
Project Growth is still in progress. In 2005 and 2006 the project was invigorated through a number of strategic investments in, among others, the JSE Limited, Pioneer Food Group Limited and various agricultural companies. In 2006, our investments in agri companies (including Pioneer) was transferred to Zeder - a listed agricultural investment vehicle. In 2006 Paladin Capital was formed from all the PSG private equity investments. We are proud of the company we have built, and we are excited by the challenge of matching and exceeding our past performance in the years ahead.
Milestones
| 2007/2008 |
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| 2006/2007 |
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| 2005/2006 |
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| 2004/2005 |
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| 2003/2004 |
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| 2002/2003 |
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| 2001/2002 |
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| 2000/2001 |
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| 1999/2000 |
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| 1998/1999 |
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| 1997/1998 |
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| 1996/1997 |
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| 1995/1996 |
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