Washington H Soul Pattinson
Recommendation
As is usual with investment companies, the recently released half-yearly statutory results from Washington H. Soul Pattinson mean little. The group also reports a non-statutory figure—regular profit after tax—that compiles the company’s share of operating profits from its many investments. For the half, this figure increased 1.8% to $88.7m. Higher contributions from coal miner New Hope and TPG Telecom were mostly offset by lower results from Brickworks and CopperChem. Directors declared a fully franked interim dividend of 17 cents (ex date 13 Apr), up 13%.
We went along to the results presentation hoping to hear more about the now abandoned sale process for New Hope. Unfortunately, management kept tight-lipped. Management initiated the sale process in response to bidder interest but, in the absence of anything but a knockout bid, seem happy to otherwise develop and grow the coal miner’s high quality assets. That suits us fine (although, of course, we would be happier still if a knockout bid eventuated). The meeting also contained no talk about Perpetual’s push to unwind the antiquated cross-shareholding with Brickworks. On this front, we hope for change one day but aren’t holding our breath. Our investment case, however, is not reliant on an unwinding.
This company is best understood via a sum-of-the-parts valuation, as outlined in Soul Patts: chemists, coal or cash? of 29 Sep 11 (Long Term Buy – $12.50). With the stock prices of the company’s most substantial investments up since then, the ‘Market valuation’ outlined in that review will have risen somewhat. The stock price has barely changed since Soul Patts & Brickworks: New Hope of 6 Oct 11 (Long Term Buy – $13.75), and it remains a mildly underpriced investment. For a better understanding of the company and the cross shareholding, we’ll be publishing a Dumb questions for Intelligent Investors video soon. LONG TERM BUY.
Note: The model Income portfolio owns shares in Soul Pattinson, while the Growth portfolio owns shares in Brickworks.