There was a double-whammy of announcements from PSG. The company released results for the year ended February 2022 as well as a firm intention announcement for the value unlock transaction.

I’ll start with a brief overview of the results.

Net asset value per share was R127.49 as at 28 February 2022, representing an increase of 38.9% over the past 12 months.

PSG Konsult achieved a 32% increase in recurring HEPS, demonstrating once more the benefit of owning the client relationship rather than creating financial products. Curro could only manage an 8% increase in recurring HEPS. Zeder also contributed positively, with a meaty fair value gain and dividend income to sweeten the deal.

Moving into the smaller investments, PSG Alpha incubates new businesses (although its stake in Stadio can hardly be considered a startup) and recognised a gain in fair value for the year. Dipeo Capital is a B-BBEE investment holding company and suffered a drop to a negative equity value, which isn’t uncommon in these structures that are funded by preference shares with a high level of gearing i.e. very little equity value, like buying a house with a tiny deposit.

Of course, the market has been focusing on the unbundling rather than the underlying results. There is finally clarity on what the directors are planning here.

If the deal goes ahead, the following investments will be unbundled to shareholders: 60.8% in PSG Konsult, 63.6% in Curro, 34.9% in Kaap Agri, 47% in CA&S and 25.1% in Stadio. You probably aren’t familiar with the CA&S name. The FMCG company trades on the Cape Town Stock Exchange and will migrate its listing to the JSE before the unbundling.

PSG shares would then be acquired from shareholders at a price of R23 per share, which would reflect the assets that aren’t being unbundled (Zeder and PSG Alpha, including part of the stake in Stadio). The “Remaining Shareholders” (who currently hold 34.6% in PSG) would hold 100% of the vehicle once delisted.

This transaction is a direct result of the stubborn discount to net asset value that PSG has been trading at. The same is true for most investment holding companies in South Africa, so this is a structural issue in the market.

Of course, a deal like this requires shareholder approval. An independent expert is being appointed to provide an opinion to shareholders on whether the proposal is fair and reasonable.