Energy

Sol Patt’s delivers major 1H net profit surge: New Hope/Brickworks provide strong kicker

Thu 24 Mar 22, 1:36pm (AEST)
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Key Points

  • Much of the loss can be attributed to a one-off write-down of goodwill connected to the acquisition of Milton Corporation
  • The group paid a higher dividend on the back of a 117% jump in interim revenue
  • Operational performance across the portfolio continues to be robust

If the somewhat insipid movement in the share price at the open (up 1%) is anything to go by, the market was surprisingly uninspired by revelations that Washington H. Soul Pattinson and Company (ASX: SOL) delivered 281% increase in adjusted net profit to $344m for the first half FY22.

What the market clearly didn’t like was the impact from acquisition of [a top ASX200 stock] investment company Milton Corporation (ASX: MLT) which saw the strong surge in adjusted net profit, courtesy of multiple tailwinds, turn into a loss of -$643m, compared to a gain of $68.9m in first half FY21.

But much of the loss can be attributed to a one-off write-down of goodwill connected to the acquisition of Milton Corporation.

Revenue jump

However, today’s announcement wasn’t all bad news for shareholders, with the investment giant paying a higher dividend on the back of a 117% jump in interim revenue.

Commenting on today’s result, Managing director Todd Barlow noted:

"Operational performance across the portfolio continues to be robust".

"Despite disruptions caused by Covid-19, floods and political unrest we are seeing strong profit and dividend growth.”

Other operational highlights at the half year included:

  • Net cash flow from investments on a like-for-like basis (without Milton) was up 81% (compared with first half FY21).

  • Pre-tax net asset value per share up 3.4% for the period (outperformance of 8.6% against market).

  • After tax net asset value per share up 17.7% over first half (outperformance of 22.9% against market).

  • Milton successfully integrated and providing greater diversification and liquidity to pursue new investments across a range of asset classes.

Exposure to resources

Beyond the increase in the interim dividend, shareholders could take some comfort from the contribution that resources made to the group’s significant rise in regular net profit (ex-Milton acquisition).

The group clearly benefitted from its 40% stake in large-cap (market cap $2.7bn) coal miner New Hope Corporation Limited (ASX: NHC).

Due to soaring prices and decent output, the coal miner’s net profit at half year went from less that $1m to $479m.

Operating cash flow also soared over 600% to $452m, with the miner now sitting on a war chest of around $1bn in cash and debt facilities.

On the back of this outstanding result, the miner will pay a normal dividend of 17 cents per share plus a special dividend of 13 cents.

Also contributing the first half result was the group’s battery metals play Round Oak Metals which has a group mine life of 13 years, underpinned by the Stockman project in northeast Victoria.

There has been talk around a future float of Round Oak Metals, and assuming it is priced similarly to another base metals play, 29Metals (ASX: 29M), is expected to fetch a market cap of around $860m.

Brickworks

The group’s half year result also benefitted from its 44% holding in Brickworks Limited (ASX: BKW) which today announced a one-off $279m profit from the Milton merger.

Brickworks holds circa 40% equity in Washington H Soul Pattinson.

Revelations that revenue was up 24% to $535m, with underlying net profit up 269% to $330m at the half year, saw the Brickworks share price 3.72% higher at noon today.

Click here for fuller coverage of the Brickworks interim result announced today.

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It's been a rocky 12 months for the Washington H Soul Pattinson share price.

What brokers think

Consensus on Washington H. Soul Pattinson and Company is Hold.

Based on Morningstar’s fair value of $27.86, the stock looks undervalued.

While Morgans maintains a Hold on the stock, and a target price $36.78 – which represents 36.2% upside to the current price - the broker has not updated its recommendation since late September last year.

Written By

Mark Story

Editor

Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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