It’s no small feat to lure R13.3bn away from competitors in a market beset by economic woes of Ramaphosian proportions.
Yet this is exactly what PSG Konsult managed to do in 2022 — despite the precipitous drop in South Africa’s business and consumer mood.
“We’re advice-orientated and in circumstances such as we’re experiencing now, people seek advice,” says CEO Francois Gouws.
That’s to the benefit of PSG Konsult’s army of advisers, who have to talk customers through soaring living costs, higher interest rates, lacklustre markets and political uncertainty.
Still, PSG Konsult wasn’t immune to the travails experienced by the market last year. Its asset management unit took a hit as performance fees slumped, even as management fees rose 11%.
We’re advice-orientated and in circumstances such as we’re experiencing now, people seek advice
— Francois Gouws
The unit increased its assets under management by 16% to R48.6bn. Compare that with Coronation Fund Managers’ 4.9% growth in assets under management during 2022, and Ninety One’s unchanged corresponding figure in the first nine months of last year. Add to that the 14% increase in assets under administration, and the unit seems well on its way to contribute more to the group’s earnings in future.
As for PSG Insure, which owns Western National Insurance, its earnings fell 4% due to the KwaZulu-Natal floods, the largest catastrophic event in South African insurance history. Compared with the likes of Santam (the country’s largest short-term insurer), which saw a 27% decline in headline earnings for 2022, PSG Konsult’s insurance unit got off the hook a little lighter.
“In the previous year [2021], we wrote back provisions for business interruption claims, so the insurance unit came off a high base,” Gouws says. Still, due to its focus on commercial insurance, the company can write policies at an underwriting margin of 13%. Though this compares poorly with last year’s 18.5%, it’s still more than double Santam’s conventional insurance underwriting margin of 5% last year.
However, Santam insures a wider variety of assets, including personal lines such as household, vehicle and homeowner insurance. Western also focuses on commercial lines of insurance with a wide geographic footprint across South Africa, Gouws explains. That reduces concentration risk in events such as the KZN floods, or the Knysna fires of 2017.
About PSG Konsult’s outlook, Gouws says the company wouldn’t continue investing in technology to improve usability of its platform or new advisers if it didn’t believe in the country’s future. “We have several growth opportunities as our market share is still small,” he says.
The company also indicated at the time of releasing its full-year results that it will continue to buy back shares from its shareholders. With R2bn in cash on hand, PSG Konsult aims to increase its dividend payout ratio to 60% of its recurring headline earnings, up from 50%.
In 2022, the company bought back 35.7-million shares for R415.9m at an average of about R11.65 apiece.
A wealth manager is an apex business in the financial services industry
— Royce Long
Obsidian Capital co-owner Royce Long says PSG Konsult’s excess capital “is due to its robust business model, which enables it to either pay out higher dividends or buy back shares”.
A wealth manager “is an apex business in the financial services industry”, he says.
Yet the share buyback hasn’t done much to inflate PSG Konsult’s share price. Over the past 12 months it’s declined about 9.4%, though it trades on a hefty p:e of 17.4 and a rather meagre trailing 12-month dividend yield of 2.8%.
In contrast, the JSE all share index gained 6.8% over the same period. And compared with competitors such as Coronation (now on a p:e of 8.1 and dividend yield of 12.6%) and Ninety One (p:e of 10 and dividend yield of 6.7%), PSG Konsult looks rather pricey.
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