Global Credit Ratings has accorded the above credit rating(s) on PSG Financial Services based on the following key criteria:
PSG Group (“PSG”) is a JSE listed holding company, with its sole asset being a 100% stake in PSG Financial Services (PSGFS). PSGFS, in turn, is the entity through which the investments in the group’s underlying subsidiaries and associates are held. PSGFS is also the primary entity through which the group raises debt and preference share funding, although ordinary shareholders equity is issued at the PSG level.
PSG is an investment holding company with a diversity of interests, mainly focusing on the financial sector, although now spanning several industries. The group has demonstrated a strong track record in building up companies (through the investment of both financial and management resources) to the point where they can be listed and ultimately become leaders in their industries. Strong growth in the value of underlying businesses has seen the sum-of-the-parts valuation increase more than 3-fold over the review period, historically driven by the investment in Capitec Bank. While Capitec has reached a more mature phase, value enhancement is anticipated from Curro and some of the agricultural interests.
PSG posted 33% growth in recurring headline earnings to R715m in F13, almost double the F11 level. While earnings growth has been driven by Capitec, the majority of the underlying business reported positive earnings growth. Added to this was strong profits from the sale of non-strategic assets that saw total income jump 62% to over R1.1bn. PSG’s use of perpetual preference share funding has helped maintain gearing at low levels, with a net ungeared balance sheet reported in most years. While gross debt rose to R2.2bn at FYE13, this included R750m in redeemable preference shares, which entail less risk than ordinary debt and was matched a by similar increase in cash. Capitec’s strong earnings and dividend payments are expected to provide the cash flow underpin for the group to continue its investment strategy. Other businesses such as PSG Konsult and Zeder investments are also expected to provide strong dividend cash flows to PSGFS.
Positive ratings action is dependent on continued strong cashflow growth for underlying subsidiaries. Particularly when Curro becomes cashflow positive, this would see cashflows improve, while at the same time reducing cashflow absorptions. A weakening in the performance of underlying investments, particularly Capitec, would be negatively viewed. In addition, an increased utilisation of debt at a group level as a preferred funding vehicle (a shift away from preference shares) would warrant a review of the rating.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Aug/2006)|
|Long term: A-(ZA); Short term: A2(ZA)|
|Last rating (Nov/2012)|
|Long term: A(ZA); Short term: A1-(ZA)|
|Primary Analyst||Secondary Analyst|
|Eyal Shevel||Thato Modungoa|
|Sector Head: Corporates||Junior Analyst|
|+27 11 784 1771||+27 11 784 1771|
|Sector Head: Financial Institution Ratings|
|+27 11 784 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.
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SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
PSG Financial Services participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit rating/s has been disclosed to PSG Financial Services with no contestation of the rating.
The information received from PSG Financial Services and other reliable third parties to accord the credit rating included the latest available audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements, most recent year to date management accounts, corporate governance and enterprise risk framework, reserving methodologies, capital management policy, Industry comparative data and regulatory framework and a breakdown of facilities available and related counterparties.