GCR upgrades PSG Financial Services Limited

AUGUST 2, 2016

Global Credit Ratings (GCR) has upgraded the national scale issuer long term rating assigned to PSG Financial Services Limited (PSGFS) to A+(ZA), with the short term rating affirmed at A1(ZA). The outlook is accorded as Stable.

Eyal Shevel, Head of Corporate Ratings at GCR says, the rating upgrade takes into consideration the strengthened average credit quality of PSG’s investment portfolio, supported by the improved credit profiles of its three largest listed investee companies, Capitec, PSG Konsult and Curro Holdings.

The group’s well-defined investment strategy is considered a key strength, based on the long-standing and highly regarded management team, which has demonstrated a successful track record of building early-stage investee companies for long-term value creation.

“This is evident from the substantial value enhancement in the asset portfolio year on year, with the sum-of-the-parts value reported at R40.4billion at financial year end (FYE) 2016, up from R10.3billion at FYE12. Nonetheless, note is taken of the inherent exposure to share price fluctuations,” adds Shevel.

PSG displays relatively high asset concentrations, with its three largest investments, Capitec (39%), Curro Holdings (23%) and PSG Konsult (13%), representing a substantial 75% of its sum-of-the-parts total assets. This is partially mitigated by a degree of business diversity, reflected by investments in several different industries, though the focus on core investments will continue to expose the group to the financial performance of these entities.

With a number of investments remaining in a growth stage, PSG has been largely dependant on the consistently strong dividend streams from Capitec and Konsult, however, cash inflows from corporate sources cover the group’s low operating expenses and financing costs. In addition, the holding company has a track record of maintaining a solid liquidity profile, which is considered more than sufficient to meet any potential investment or operational requirements.

“Upward rating movement could be driven by greater emphasis on asset diversity and more balanced cash flow generation across group companies, reducing the reliance on Capitec in particular. Downside pressure could arise if GCR observed a more aggressive financial policy and/or the underperformance of any core investments that could curtail cash flows. Should the underlying credit fundamentals of key investee companies deteriorate, this could also have a potential negative bearing on the rating,” concludes Shevel.