Piet Mouton on the SA economy and PSG stable

In this interview on the BizNews Pour Hour, CEO of the PSG Group Piet Mouton shares his thoughts on the South African economy and the underlying businesses within the PSG stable. Already out of fashion, investment holding companies have been further hampered regarding unfavourable tax legislation pertaining to unbundling. The primary reason for taking a long-position in an investment holding company should be that investors expect the underlying business will be able to grow and be value accretive over the long-term. The second reason is based on expectations that management will be able to unlock value via a corporate action such as an unbundling. With the new unfavourable tax legislation pertaining to unbundling, this makes investment holding structures even less appealing. – Justin Rowe-Roberts

Piet Mouton on the new unbundling tax legislation: 

I can’t really fathom why they went and changed the unbundling legislation because nobody is going to unbundle anything if one plus one doesn’t equal three at the end of the day. Treasury wants to bring more people into the tax loop. However, if you were not paying tax before the unbundling on the single investment, the tax man isn’t worse off because now the person owns two shares that he doesn’t pay tax on. They have gone and made it slightly more difficult to unbundle assets. So if somebody owns more than 5% of your shares and they’re not a tax paying entity and you unbundled, then you have to pay tax on their portion on behalf of all shareholders, which I think is inherently unfair.

On the health of his father, South African business icon Jannie Mouton: 

Dementia is an illness that progresses. I still see him on a weekly basis, but it’s been tough with Covid because he is in the high risk category. But, he’s okay. He’s just not coming into the office anymore and I think that is unfortunate. It was always nice to have him around.

On the 30% discount to PSG’s sum-of-the-parts valuation: 

The market will always determine the level of discount which one trades at and you’ve got very little influence over that. I think you go through periods that are different, but there’s definitely a headwind at the moment against investment holding companies. I don’t think the current tax legislation has helped that any better going forward. The sentiment really has to change towards investment holding structures. One of the fundamental reasons of being listed is to be able to access the equity markets and when you are trading at a 30% discount, I don’t think that’s available to you at the end of the day. You have just all the bad stuff from the JSE and none of the good stuff.

On the prospects and ambitions for the PSG Group: 

Firstly, I would just like to say I’d love to get another Capitec. I also think we need to be honest with ourselves, Capitec was the best business created in the last twenty years in South Africa. However, excluding Capitec, the portfolio has returned 15% growth per annum over the last 10 years. If we can continue to do that over the next 10 years, then we’re going to be four times the size, which is a nice and easy calculation. So we don’t have to find absolute rockstar investments like Capitec, but we can aspire to.

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