Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) has reported its result for the FY21 half-year. I think it’s still the dividend king of Australia.
WHSP FY21 half-year result
The diversified investment house reported that its group regular net profit after tax (NPAT) dropped 27.7% to $90.2 million, whilst statutory profit increased by 35.2% to $68.9 million.
The pre-tax portfolio value of WHSP went up 1.3% to $5.2 billion, whilst the net cash from investments dropped 8% to $85.3 million.
Why did regular net profit fall?
WHSP explained that whilst the reported regular net profit fell, it would have been higher if not for the change in accounting treatment for TPG Telecom Ltd (ASX: TPG) after the merger with Vodafone. There was also start up losses with Tuas Limited (ASX: TUA).
New Hope Corporation Limited (ASX: NHC) revenue was down due to lower thermal coal prices in the first quarter and lower production.
However, Round Oak – WHSP’s private resources business – benefited from improved production, higher commodity prices and lower ore treatment charges.
How did key parts of the the portfolio perform?
Overall, as a I said, the portfolio value went up 1.3%.
Over six months, the Brickworks Limited (ASX: BKW) value increased 14%, partly due to the strength of WHSP – they have a cross-ownership partnership. The equity portfolio and financial services portfolio went up 16.4% and 17% respectively.
However, the telecommunications portfolio and New Hope saw a fall of 7.4% and 9.7% respectively.
WHSP did sell $70 million of New Hope shares during the period.
Management thoughts on the portfolio
Looking at a few key parts of the portfolio:
TPG continues to suffer from NBN headwinds but the migration is in its final year. This amounted to a $83 million hit to EBITDA. There’s an ongoing COVID-19 impact on roaming and visitor revenue until international tourism resumes. This apparently caused a $90 million EBITDA hit. The telco is aiming to reduce costs and launch a 5G powered fixed wireless offering.
Brickworks is seeing more demand for its building products and it continues to construct its large new warehouses, such as the one for Amazon.
With New Hope, it’s seeing a strong recovery of coal prices, to the best it’s seen since the start of 2020. Demand from Asia remains strong and it’s expecting more volume from Bengalla after the completion of planned maintenance.
For Round Oak Minerals, resource prices have recovered strongly, thanks to copper being a key commodity for electric vehicles as well as growing urban populations.
The investment house also gave a bit of info on its growing agriculture portfolio, which is now worth $139 million – it’s spread across the country and includes citrus, table grapes, stone fruit, macadamias and a recent WA expansion into kiwi fruit.
WHSP dividend
The WHSP dividend was increased by 4% to 26 cents per share, meaning it has increased every year since 2000.
Outlook
WHSP said the outlook is improving after COVID-19 impacts. The Round Oak Minerals business continues to perform well and it’s benefiting from the strong commodity prices.
For TPG, WHSP is expecting sustained growth in earnings over time. Brickworks is also experiencing good market conditions in Australia.
WHSP said that it has good liquidity available for new investments and it has a strong pipeline of opportunities which it believes will deliver superior risk adjusted returns.
Summary thoughts
Like I mentioned in my WHSP preview, the key thing was dividend growth. And the company just keeps delivering on that side of things.
There wasn’t any mention about making divestments, but it was interesting to see that WHSP continues to add to its agriculture portfolio. It’ll be interesting to see what happens over the next six to twelve months and the prospect of new investments.
I don’t think that WHSP is cheap at these prices. It actually looks a bit pricey, compared to where the relationship between its asset value and the WHSP share price were sitting during a lot of 2020.
I plan to remain a WHSP shareholder for the long term, but I’m waiting until the share price is a lot closer to the underlying asset value before buying any more shares.
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