As more companies suspend dividends in anticipation for tough times ahead this year, the financial services arm of the PSG Group, PSG Konsult, has paid a dividend for the year ended in February, and has no plans to stop returning capital to shareholders yet.
The company, which is part of the Mouton family’s diverse investment portfolio, said while the coronavirus (Covid-19) wreaked havoc on global and local stocks in March, it only lost 1% of its shareholders’ assets, thanks to a conservative investment strategy which saw it invest large chunks in cash and money markets.
It’s this conservative approach that has allowed the company to continue paying dividends, said PSG Konsult CEO, Francois Gouws. The company has been building capital for a number of years now. For five years, it changed its dividend policy from paying 75% of earnings to disburse only between 40% and 50%. This capital accumulation also helped PSG Konsult pay off all its debt last year. As companies prepare to deal with strained balance sheets because of Covid-19, PSG Konsult’s concern is more on the medium-term impact of the virus than managing liquidity in the short-term.
“We put quite a strong emphasis on building a capital base and invested that capital relatively conservatively. Because it’s so conservatively invested, it will support the business’ capital needs.
He said the company’s concerns are more about what will happen in the medium-term – the unemployment levels and GDP performance as a result of Covid-19. But as uncertain as what those indicators are, Gouws, in usual PSG style said the situation is not as bad as many fear.
“The thing we’ve always tried to do at PSG, and perhaps some of that comes from Jannie [Mouton, the founder] is, we refuse to be negative, said Gouws, adding that fiscal relief packages that government is rolling out as well as monetary policy interventions will be mitigating factors.
PSG Konsult said its operations are classified as essential services, so it continues servicing clients even though 99% of its staff and advisers are working remotely.
David Talpert, analyst at Avior Capital Markets, said PSG Konsult will be able to continue paying dividends because it runs an asset light business model which doesn’t require much funding. “The earnings are all cash with no capex requirements. Therefore, we believe Konsult will keep a similar payout ratio. However, with lower market levels and a slowdown in the economy, we expect lower 2021 full year earnings which will probably result in a flat or lower overall dividend,” he said.
Talpert added that like most other companies, PSG Konsult’s shareholder assets are mostly insurance assets that are conservatively invested which is why they held up well in March. But the company’s assets under management – invested on behalf of its clients – also did better than the market, he said.
PSG Konsult said its AUM stood at R207.9 billion at the end of March, a decrease of around 10% while the JSE All Share Index declined 13%.