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Mid-Cap

Fully Franked 7.89% Dividend : Seven Group Holdings

September 01, 2015 | Team Kalkine
Fully Franked 7.89% Dividend : Seven Group Holdings

  • Received approval for next Kings Square development: Seven Group Holdings Ltd (ASX: SVW) got development approval for developing the next stage for Kings Square 6 a twin tower residential in Perth, via a subsidiary of Seven Entertainment. The group is searching for partners to help it to improve the next phase for long term. Investors were quite excited to hear this approval and accordingly the shares rallied over 5.6% on Aug 27.
       
       SVW Daily Chart (Source - Thomson Reuters)
  • Disappointing 2015 fiscal year results: Seven Group’s revenues fell by 10% yoy to $2,779.6 million for the fiscal year of 2015 impacted by the declining revenues from WesTrac Australia due to transition of the Australia’s mining sector o production cycle from investment. On the other hand, the WesTrac Australia support revenues rose 13%, driven by the resource production cycle. WesTrac Australia is well positioned to leverage the group’s 70% share of installed equipment in the mining sector, and subsequently drive its export volumes. Meanwhile, the group’s underlying EBITDA fell by 11% yoy to $376.6 million, while the EBIT plunged 16% to $314.5 million, which is at the lower end of the group’s guidance. Seven group reported a statutory net loss after taxation to $359.1 million for FY15, against net profit of $262.5 million in earlier fiscal year. The underlying net profit after tax declined by 19% yoy $204.3 million, and EPS fell to 59 cents per share, as compared to 74 cents per share in pcp. Meanwhile, SGH maintained its fully franked dividend at 20 cents per share. 
      
           SVW Dividend Numbers (Source - ASX)
  • Generating value through its transformation efforts: WesTrac Australia is focusing to control costs to enhance its value in the current tough market conditions. SGH is also striving to enhance its operating cash flow, optimize working capital levels and boost cash flow to have underlying EBITDA cash conversion of 99%. The firm’s “Transformation” process also comprises decreasing FTE headcount across WesTrac Group and AllightSykes by 7.3%. Coates Hire also cut 68 roles during the year. Meanwhile, WesTrac Australia is implementing a simplification, standardization and scalability (S3) program which is estimated to be completed by next fiscal year and subsequently deliver an annual savings of $38.3 million, as well as enhance its competitive position.   Meanwhile, Seven Group has a solid balance sheet with net assets of $2,809.4 million during the fiscal year. SGH has improved its listed portfolio’s market value by $177 million since the last twelve months via realized and unrealized gains and investments. The group declared a share buyback of 17.7 million shares during Feb 2015, which would be finished by March 2016.
      
             SVW Underlying Results (Source - Company Reports)
  • Outlook: Seven Group’s performance differs based on its segments. The WesTrac Australia is expected to generate value by controlling costs while maintaining the mining production. However, the challenging conditions for mining and industrial services is expected to continue due to coal and iron ore prices pressure. The shifting demand from construction to power generation in China would boost WesTrac China. Seven West Media is expected to benefit from magazines and newspapers, despite pressure from television advertising market (which is losing to on demand video advertising market). Moreover, SGH Energy intends to capture the booming East Coast gas market, and finished Nexus Energy acquisition in December 2014. On the other hand, pressure from infra as well as mining could impact Coates Hire’s, while better infrastructure demand from NSW might partly offset the losses. On an overall note, Seven Group expects its underlying EBIT to be under pressure even for the next fiscal year of 2016, and decline by 10% on a year over year basis. 
  • Stock Performance: Seven Group shares have been under pressure during the year, falling over 15.3% year to date. In fact the stock tumbled more than 34.6% over the last three months impacted by its worst FY15 performance, pressure across its business segments and investments as well as cost cutting initiatives from its customers. On the other hand, SGH has evolved during this tough market conditions, so as its business and investments, and repositioned itself to improve its growth opportunities. Meanwhile, we believe that the stock has already delivered its worst performance, and its cost cutting initiatives, recent development approvals as well as better performance of its business might offer some support to the stock. Seven Group also has a solid dividend yield of 8.6%. Accordingly, investors looking for cheap value dividend stocks should consider adding SGH to their portfolio at the current price of $5.07

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