PSG Financial Services delivers 28% increase in interim earnings

Cape Town - PSG Financial Services (the group) delivered an impressive performance over the six month period with a 28.0% increase in recurring headline earnings per share and a return on equity of 26.2%. According to CEO Francois Gouws, “While operating conditions remained challenging, more favourable equity market conditions and sustained high interest rates impacted positively on the group’s results during the period. Our key financial metrics under these conditions highlight the competitive advantage of our advice-led business model.”

He says, “The firm remains confident about its long-term growth prospects, and we therefore continued to invest in both technology and people. Compared to the prior comparable period, our technology and infrastructure spend increased by 20% (these costs continue to be fully expensed), while our fixed remuneration cost grew by 14%. These factors had a muted impact on our operating margins. We are proud of the progress made in growing our own talent, with 77 newly qualified graduates having joined during the six-month period.”

Total assets under management increased by 15.9% to R435.7 billion, comprising assets managed by PSG Wealth of R379.1 billion (16.4% increase) and PSG Asset Management of R56.6 billion (12.4% increase), while PSG Insure’s gross written premium amounted to R3.7 billion (10.3% increase). Performance fees constituted 6.0% (2023: 2.5%) of headline earnings.

Capital management and dividend declaration

PSG’s capital cover ratio remains strong at 286%* (2023: 240%) based on the latest insurance group return. This comfortably exceeds the minimum regulatory requirement of 100%. Gouws says, “Following discussions with the Prudential Authority, refinements were made to our required capital calculation resulting in an increased capital cover ratio. These refinements include applying Basel regulations instead of the equity symmetric formula which we believe is more suitable for our margin and credit lending activities.

During August 2024, Global Credit Rating Company affirmed the group’s long-term and short-term credit ratings at A+(ZA) and A1(ZA) respectively, with a Positive Outlook. The increase in the group’s capital cover ratio and the credit rating affirmation is testament to the group’s strong financial position and excellent liquidity.”

PSG continues to generate strong cash flows, which gives the firm various options to optimise its capital structure and risk-adjusted returns to the benefit of shareholders:

• The group repurchased and cancelled 11.2 million shares at a cost of R181.0 million during the period as part of shareholder capital optimisation.
• Our shareholder investable assets’ exposure to equity increased to 9% (6% in the comparable period). We continue to monitor investment markets and will gradually increase our value at risk exposure to align with our long-term target.

*This is the adjusted solvency capital requirement (SCR) ratio after applying methodology refinements; the ratio on a comparable basis to the prior year would have been 248%

Interim dividend

Considering the firm’s strong cash position, the board declared an interim gross dividend of 17.0 cents per share from income reserves for the period ended 31 August 2024 (2023: 13.5 cents per share). The group’s dividend pay-out ratio remains between 40% to 60% of full year recurring headline earnings excluding intangible asset amortisation.

Looking forward

Gouws says “PSG is a proudly South African firm that believes in the power of its citizens to find solutions to the country’s problems, and in their ability to ignite its untapped potential. Nevertheless, continued low levels of economic growth remains a seemingly intractable problem, resulting in stagnated economic development which in turn exacerbates social issues such as crime and corruption.” 

He says, “The South African economy recently experienced less disruption from load shedding and saw a slight improvement in gross domestic product (GDP) growth during the period under review. The market reacted positively to the formation of the Government of National Unity (GNU) following the recent national elections,” adding that, “This may be indicative of cautious optimism about improving consumer and business confidence in the country. However, uncertainty remains and clear signals are needed to show that sustainable economic growth will be prioritised. Policy reform and a legislative agenda that is conducive to economic growth are sorely needed. The process should include thorough social and economic impact studies, to allow for the practical financial implications of the policy choices to be discussed with the various stakeholders.”

Gouws says that irrespective of the short-term challenges, the firm remains confident in its long-term strategy and will continue to invest in the businesses in order to secure prospects for growth.

“Irrespective of the short-term challenges, we remain confident in our long-term strategy and will continue to invest in our businesses, thereby securing prospects for growth. Moreover, the firm has aimed to stimulate debate about improving South Africa’s economic prospects through the Think Big SA competition, run in collaboration with Economic Research South Africa. We would like to thank everyone who participated in the competition and to congratulate the winners again. While we were impressed by the quality of submissions, we understand that our economic and societal challenges will not be resolved quickly. Therefore, we will continue to monitor local and global events and the associated impact on the group’s clients and other stakeholders, and will adjust our approach if required,” concludes Gouws.