When you think of insurers or wealth managers, PSG Financial Services might not be the first or even the second company that comes to mind, and it’s not because it isn’t a serious player in the field. PSG lacks the razzmatazz of some of its rivals, but it is a solid business and its latest financial results prove its growth hypothesis.
Despite a challenging year, PSG grew recurring headline earnings by 5% to 60.9c per share and declared a dividend of 22c per share (up 10% from last year). Its wealth management division shot up 14% to R464m, and total assets under management grew 15% to a blistering R549bn. In other places it wobbled slightly, with return on equity (ROE) shrinking slightly to 26.5% and its insurance division taking a substantial hit this year due to weather events in the Cape.
But PSG CEO Francois Gouws is not concerned about these stumbles. “What we tend to say to investors is: ‘Look at our results on a three- to five-year rolling basis.’ And our five-year [growth rate] number is 15%.” As for ROE, he notes that this figure came about “under very specific market conditions, and that could change very quickly in the next six to 12 months”.
Analysts aren’t too ruffled either. “The wealth management section was excellent, even though the South African markets were under pressure this year,” says Connor Pretorius, equity analyst at Aeon Investment Management. As for the dip in insurance, “none of that changes the long-term story”, he adds.
Titanium Capital manager Charles Boles argues that PSG Insure’s 14.5% underwriting margin “is still very healthy”. PSG has persevered in these trying times, he says, due to its “secret sauce” — its distribution and strong brand. “Its branch network is a big asset”, reaching into rural areas and farming communities. From its inception, PSG “has been perceived as a well-run, credible group”, financially astute and trustworthy, says Boles.
For Gouws, PSG’s secret sauce is that it is “an advice-led business, not a product-led business”. The group employs over 1,000 advisers, who form close relationships with families and often stay with them for generations.
But for some, relying on traditional advisers might be less cost-effective as low-cost investment platforms encroach on the market, allowing people to manage their own investments without paying through their teeth for financial advice.
“The direct component of the market is still modest by size,” argues Gouws. “Our view is that it will grow over time, but you have to bear in mind that we already have a direct business, PSG online, where we service a component of that market.”
Though Boles agrees that the market will grow, he says “people don’t want to spend their entire lives looking at financial products” and will still need advisers.
Pretorius says: “I don’t believe a high net worth individual is going to place their wealth in the hands of AI or a site. They want a personal connection, someone they can sit down with and do their estate planning.”
Now the question is how PSG will grow while maintaining profitability. “Continuing the growth is good, but it’s just as important that it doesn’t grow at the expense of margins,” says Boles.
It’s a narrow tightrope to walk, but Gouws says the answer is that slow and steady wins the race. “All our businesses still have relatively modest market shares … our efforts are to grow organically, and with low market shares we’ve got a long runway of growth.”
The experts agree. Pretorius says all three of PSG’s main divisions have good growth opportunities, and acquisitions or expansions are not needed. “I don’t think there’s any reason for a slowdown in the advisory growth they’ve been seeing, which has been excellent,” he says.
Boles thinks growth will come with the group doing more of the same. “Visions of hubris and taking themselves into areas that are not their lane are the biggest risks.”
Gouws says: “We don’t have any intention for new business lines at this stage. We are focused on executing our present strategy until our market share becomes market leading.”
The group might be far from that at the moment — its market share in each of these fields is still in the single digits — but it “trades at a multiple that very few stocks on the JSE trade at. That tells you it is held in high regard,” says Boles.
