Soul Patts’ portfolio seriously outperforms market, issues special divi on back of commodities windfall

Washington H. Soul Pattinson (ASX: SOL) was up 4.18% at noon after the diversified investment house reported a regular profit after tax of $834.6m for the year ended July 31, up 154.4% on the previous period.

However, due to around $1bn in goodwill impairments flowing from its acquisition of listed investment company Milton in October last year, the country’s second-oldest public company booked a net loss of -$12.9m for the year ended July 31, versus a profit of $273.2m in 2021.

Dividend bonanza

Due to strong cash flows generated from investments, the company declared a fully franked final dividend of 43 cents a share, bringing total dividends for FY22 to 72 cents per share, up 16.1% on the previous year.

The company’s 39% stake in New Hope Coal (ASX: NHC) which benefitted from strong commodity prices, also helped fund a surprise special dividend of 15c a share.

Both dividends are payable on December 12.

Management notes it is the only company in the All‐Ordinaries Index to have increased its ordinary dividends every year for over 20 years.

FY22 highlights

Other highlights from its full year FY22 result, which incorporated the investment portfolio of Milton Corporation, which merged with Soul Patts in October included:

• Net cashflows from investments, including the likes of Brickworks (ASX: BKW), New Hope Coal, TPG Telecom (ASX: TPG) and Pengana Capital (ASX: PCG) – rose 93% to $347.9m

• Cash flows from investments was 96c per share, up 28% on the previous period

• Net asset value before tax was $9.96bn, up 71.6% on the previous period

Buying the dips

Overall, the company’s expanded investment portfolio (to $9.95bn) outperformed the market by 20.2%, measured by the All Ordinaries Index, which fell -6.4%.

Soul Patts' managing director Todd Barlow attributed the company’s outperformance to its deftness buying the dips and “getting out ahead of any sort of correction when we see things are getting a bit out of control,” Barlow noted.

“Towards the back end of last year we started selling quite aggressively, moved into a net cash position by Christmas time. It was perfect ahead of the sell off. We’ve done $7bn of transaction activity in the portfolio in the last 12 months.”

$2bn war chest

Despite recent distributions, Barlow reminded investors that the company has ample cash on hand, borrowings and assets it could sell to capitalise on panic selling, which may offer up good businesses trading on the cheap.

“So between $1bn and $2bn of firepower,” Barlow noted.

Value plays aside, Barlow also reminded investors that the company is constantly on the lookout for opportunities, including acquisitions, within or outside of listed public equity markets.

“… that really plays to our strengths because we can play outside of the equity markets and the listed public equity markets and either invest private equity or provide a credit solution to these kinds of companies.”

What brokers think

Soul Patts’ share price is down -24% over one year but has witnessed a mild rebound from a low of $22.78 late June.

Consensus does not cover this stock.

Based on Morningstar’s fair value of $29.23 the stock appears to be undervalued.

Soul Patts' share price over six months.