Washington H. Soul Pattinson and Co. Ltd

Improving Fundamentals: Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), a company based out in Australia, is engaged in various business activities including pharmacy, natural resources, equity investments, telecommunications, corporate advisory, etc. In 2019, the company is looking forward to similar levels to the 2018 coal production. The company is also anticipating the gold production forecast to continue until the end of 2019. The group has a significant financial capacity to make new investments and continues to look at opportunities where the long-term, patient and disciplined investment approach can deliver outperformance for the shareholders.

Key Financial Highlights for FY18 and guidance for FY19:
 

• 1- Revenue for the group was up by 21.43% to $1174.882 Mn in FY18 as compared to $967.57 Mn in FY17 mainly on account of increase in the sale of coal, oil and gas by New Hope Corporation Limited.
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• 2- Net profit after tax (NPAT) was $266.8 million for the full year, down 20.0% on the previous corresponding period of $333.6 million. NPAT was impacted by non-regular losses of $64.3 million (2017: $51.6 million profit) and an impairment loss of Colton assets of $132.8 million which predominantly related to New Hope’s impairment of an undeveloped exploration project in Queensland
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• 3- The Group recorded the highest ever regular profit of $331 million with an increase of 17.4%.
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• 4- Strong trading conditions across the portfolio contributed to a $972 million increase in the pre-tax value of the portfolio, a 21.8% increase for the year.
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• 5- WHSP’s diversified portfolio has again delivered outstanding results for shareholders with a Total Shareholder Return (TSR) for the year of 27.5%, 13% based on last 15 years (outperforming the All Ordinaries Accumulation Index by 12.6%).
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• 6- Over the past 15 years, the investment in WHSP has increased by 525% while the index has increased by 286% outperforming the industry.
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• 7- Market cap growth and dividends added $1.1 billion to shareholder’s wealth.
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• 8- The company distributed a dividend of 56c, up by 3.7% over the previous year.
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• 9- The company saw several transactions that have improved the outlook for the company, such as the announced merger of TPG and Vodafone Australia on 30 August 2018 of $15 billion to be completed in 2019, and the acquisition of a further interest in the Bengalla mine for $860 million by New Hope to be settled in early 2019
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• 10- In the first month of the new financial year (August), the portfolio grew by 19.8% ($1.08 billion).
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• 11- The company sold its 140 years old head office at 160 Pitt Street for a gain of $68 million after-tax gain to be reflected in FY19.
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• 12- Brickworks Limited, holding 102.258 m shares, sold 7.9 Mn shares to reduce its debt with 94.3 Mn shares held outstanding.
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Key Highlights (Source: Company Reports)

On the analysis front, topline for the group increased by ~49% CAGR from $355.12 Mn in FY15 to $1174.88 Mn in FY18. As a result, the Group regular profit after tax grew by ~28.4% CAGR from $156.5 Mn in FY15 to $331.1 Mn in FY18. Profit after tax has increased by ~47.4% CAGR from $83.33 Mn in FY 15 to $266.8 Mn in FY18 although the net margin has been in line with around 47.4% over the years. ROE has increased from 2.7% in FY15 to 8.1% in FY18.

Although, the price of the scrip has been in the upward direction, the decline over the past one month has led the price to move to the lower end of the Bollinger band making a positive impact on the stock price to start rising. Also, the Relative Strength Index (RSI) indicator is also visible in positive territory. This indicates a strong bullish move that is expected to continue in the near term. While we note improving revenue and margins along with a strong bullish indication in scrip pricing as per technical charts, we have a “watch” view on the stock at the current market price of $26.080, as the stock is still at a higher level.
 
 

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