PSG: the greatest growth story of the millennium

CAPE TOWN – Since the advent of democracy in South Africa in the early 1990s, investors on the JSE have enjoyed a privileged ride. Just before the April 1994 elections, the All Share Index reached the 5 000 mark for the first time. It is now over 53 000.

Over those two-and-a-bit decades the market has grown at an annualised growth rate of over 11%.

It has also changed dramatically in its make up. Once dominated by mining stocks, it is now a far more modern and diversified bourse, where industrial and financial counters play a much bigger role.

A number of new companies have also found their way onto the market – the likes of Naspers, MTN and Discovery that have not only generated outstanding value for shareholders, but also shaped the development of the South African economy.

No new company has however been better to shareholders over this time than thePSG Group. If you had put R1 000 in the company when it listed 20 years ago, that investment would now be worth R3.5 million.

Over that time the group has grown at an extraordinary compound annual growth rate, including dividends reinvested, of 50% per annum. This level of growth over a period of two decades is pretty much unheard of. Even the marvel that is Naspers has only grown at around 23% over this period.

Yet PSG’s founder and non-executive chairman, Jannie Mouton, makes the philosophy behind this achievement sound deceptively simple.

“If there’s an opportunity, you must have the courage to pursue it,” he says. “And we like early stage investing because you either win big, or you lose small.”

High growth comes from identifying those opportunities that are initially very simple and relatively small, but have the potential to become hugely significant. And it’s difficult to find better examples of that than the two companies that have been PSG’s most telling investments – Capitec and Curro.

The bank that continues to reinvent South Africa’s banking landscape and the affordable private schools that have redefined private education in the country have been extraordinary growth stories. Since listing in 2002, Capitec has shown a compound annual return of 54%, and Curro has grown at 86% since it listed in 2011.

It’s not surprising, then, that Mouton remains a firm believer in the potential for doing business in this country.

“PSG is a New South African company,” he says. “I believe there are unbelievable opportunities in South Africa. It is still a wonderful country and I have no longing to go anywhere else.”

He points out that developed markets simply don’t offer the same opportunities.

“We have often said that we wouldn’t have a chance to start a Capitec or a Curro in the US or Europe,” he notes. “The opportunities are in South Africa.”

Capitec’s success reveals how true this is. Despite South Africa’s sophisticated and highly concentrated banking industry, a new entrant has still been able to carve out a place for itself.

“When we started a bank in South Africa nobody thought that we would have a chance, but a couple of months ago Capitec was rated as the best bank in the world,” Mouton says. “That is an unbelievable honour. Through Capitec we broke the banking oligopoly.”

Capitec’s market capitalisation is currently over R70 billion, having started from nothing. It also has more clients than Standard Bank.

In the case of Curro, it was very much a case of having passionate people driving an idea whose time had come.

“Curro is an unbelievable example of having the right people, and the right idea,” Mouton says. “When you support that, then growth is unbelievable.”

While these two companies have been the backbone of PSG’s success, and Mouton believes they still have great growth potential, he is always looking ahead. Where is the next big thing going to come from?

Mouton believes that financial services firm PSG Konsult is poised to make big gains. It has had some legacy issues to deal with, but he believes these are now behind it.

“There is no doubt in my mind that PSG Konsult will surprise all of us,” he says. “We are looking forward to tremendous growth.”

Another investment he gets excited about is PSG’s 57% interest in Energy Partners, an engineering company working on energy saving solutions.

“Energy is on everyone’s lips,” Mouton says. “There are 80 engineers in this company coming up with ideas, and we see tremendous growth coming.”

He also believes that Curro won’t be the only transformative company in the education sector. PSG has a majority investment in Impak, which provides distance learning for home schooling and curriculum and marketing support to private schools.

“Home schooling is growing at a tremendous rate,” Mouton says. “One day Impak and Curro may come together, but at the moment their models are different.”

In all cases, however, PSG has invested in businesses where it believes completely in the ability of management. The group is not interested in total control, because it wants those closest to the businesses to continue to run them.

“We have a philosophy of ultimate empowerment,” Mouton says. “Chris van der Merwe and his team are in charge of Curro, and Gerrie Fourie and his team are in charge of Capitec. We like it that way. We build the business on trust.”

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