23 March 2023
Higher coal prices and housing demand delivered Washington H. Soul Pattinson a dividend bonanza as the diversified investor looked to offset inflation through income and growth assets.
The investment group lifted its interim dividend by 24 per cent from the prior period to 36c per share after it booked a 38 per cent profit boost to $475.7m.
Soul Pattinson underwent $1.3bn of transaction activity in the six months to January 31 with the group a net seller of large cap and emerging portfolios throughout that period as it looked to reduce exposure to cyclicals and growth stocks in an inflationary environment.
Soul Patts chief executive and managing director Todd Barlow said the portfolio was defensively positioned, with the investment house holding a material cash position, and new investments target attractive, risk-adjusted returns.
“In a higher rate, inflationary environment, we are seeking greater exposure to real assets given the potential to offset inflation through income and growth,” he said.
“During the half we reduced our exposure to listed equities, particularly cyclicals and growth stocks, and invested over $400m into private equity and structured yield products.”
The strong outlook for the company saw shares rise 1.3 per cent to $28.91 on Thursday, extending total gains for the year for the year past 7 per cent compared to negative growth for the All Ordinaries and ASX 200.
The portfolio value increased to $10.5bn, an increase of 16 per cent — due to growth in its strategic investments, which were buoyed by commodity tailwinds, along with solid gains from Brickworks and Apex Healthcare.
Mr Barlow said this had resulted in about 20 per cent of the portfolio now weighted to alternative assets and cash, which do not re-rate as frequently as equities but are strategic for risk management and longer-term investment goals.
“In terms of how the company is performing, all the metrics are very strong and support the strategies that we have adopted over the past few years. The further diversification and liquidity from the Miltons acquisition has improved the business in all the ways that we said it would.”
The diversified investment group held a 37.8 per cent stake in New Hope and benefited from a 30c fully-franked dividend declared by the coal miner after it booked underlying EBITDA of $1bn in the first half as a result of elevated thermal coal prices near $400 per tonne.
Its sizeable ownership in Brickworks boosted growth as the country’s largest brickmaker reported a higher underlying profit of $410m on Thursday, driven by a record EBIT contribution from its property segment.
The group said that higher yielding instruments, such as private credit, was offering more attractive, risk-adjusted returns with it investing an additional $267.9m into the structured yield portfolio, increasing its value to $483.4m or 5 per cent of the company.
“As our fastest growing portfolio it contributed $18.8m in net cash flows, an increase of 72.5 per cent compared to the previous corresponding period,” Soul Pattinson said.
Net cashflows from investments rose 35 per cent to $246.5m and cash reserves were $597m, placing it well to invest in the second half.
Over the second half, Soul Pattinson planned to deploy capital into robust, defensible business models with Mr Barlow of the view that the current market provided opportunities for value investors to take advantage of increasing price for risk.
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