The Australian

Soul Pattinson-Miltons merger pays off for investors

Ticky Fullerton
4 December 2022
The Australian


Soul Pattinson chairman Rob Millner, left, and chief executive Todd Barlow.

 Soul Pattinson chairman Rob Millner, left, and chief executive Todd Barlow. Picture: NCA NewsWire / Christian Gilles

One year on from the $10.8bn merger between ASX-listed Soul Pattinson and Miltons, the business savvy of combining two of Australia’s oldest listed investment companies is clear.

Soul Patts chairman Rob Millner and chief executive Todd Barlow have gained an entirely new platform to continue doing what they do best – finding long-term value for their largely retail investors, who have now doubled to 60,000.

The merger brings competitive advantage with a bigger and unconstrained investment mandate across listed shares, private equity and private credit. For retail investors this diverse exposure is hard to find elsewhere.

Soul Patts’ existing plays – a 43.3 per cent share of Brickworks, 39.9 per cent of coal miner New Hope and 12.6 per cent of TPG – have been stalwart investments, enabling Millner and Barlow not just to pay dividends, but grow dividends every single year since 2000. There is also a 25 per cent of Tuas, the Singaporean telco disrupter spun off TPG.

Todd Barlow has around $1.5bn liquidity in cash and facilities and even more to be found in the portfolio with $3bn in equities. Soul Patts is on the hunt for the next TPG. That could be Tuas or in a sector like health.

Millner chaired both Milton and Soul Patts and says integration of two teams has been smooth, with Milton chief executive Brendan O’Dea now the company’s chief investment officer.

For Barlow, the merger has lifted the constraints on investing. “We were basically fully invested before Milton came along and the challenge that we had was about 75 per cent of our portfolio in those major long-term investments,” he says. The low cost base of those investments attracts capital gains tax, a strong disincentive to sell. But since the Milton merger, Barlow has clocked up $7bn in buying and selling action, reweighting into more private credit and private equity.

“We are building out a unique portfolio that doesn’t exist in the ASX, where you get access to a number of different asset classes that in our mind are better risk-adjusted returns than straight equities,” says Barlow.

Soul Patts has private equity investment in agriculture and water, education through swim schools and engineering and manufacturing. Barlow wants PE to grow to 20 per cent of the total portfolio or $2bn, from its current 7 per cent. In the company’s full-year 2022 results PE returned 19.1 per cent.


Final approval has been granted for the expansion of New Hope’s New Acland coal mine. Picture: AAP

In private credit the team has so far has deployed $500m but the pipeline could double that figure, given the higher rates and credit spreads in the market. Barlow says the portfolio will deliver over 10 per cent returns. Soul Patts’ available liquidity to deploy as capital has also bumped it up the queue of private credit providers.

“People used to come to us as the fourth or fifth option. Now we are one of the first that people come and talk to,” says Millner.

Far from risky, Barlow sees private credit as giving away some upside in equity investing for downside protection. He says total returns in equity in the last 30 years have averaged 9 per cent – and if someone offers over 10 per cent in the private credit market, this can be a better risk-adjusted return for investors.

Two weeks ago, an early Christmas present arrived from the Queensland government: final approval for New Hope’s New Acland coal mine expansion. Coal is bound for Asian customers and Millner says they are not far away from turning the first sod of soil. “We’ve been swamped with people wanting jobs, particularly people wanting to come back. It’s not all fly, in fly out. We are about 45 minutes from Toowoomba, so we’re getting a good class of people who want to come and live in a good area,” he says.

Millner and Barlow’s decision to dig in on coal as others vacate is all the more notable, given the register is largely retail.

The chairman says over the years New Hope has paid over $1bn to shareholders just in special dividends. “Go back to August 2020 and the coal price was $US48 a tonne. It is $US385 today, which in some ways is getting too high, because the Japanese and Taiwanese power utilities have to make money as well. We don’t want it to go to ridiculous levels,” he says.

On ESG, Barlow says the company has been very clear about its strategy for a number of years and the company’s sensible, disciplined approach is becoming more accepted in the market.

“If we sell coal, the coal is still going to be bought by the customers, so nothing changes – but that puts the operations into more marginal hands. Coal will still have a meaningful role to play in the transition, and during that process we are going to be responsible owners and operators. And I think that’s really resonating with our shareholders,” says Barlow.

Rob Millner says New Hope has been leading research on land rehabilitation with state agriculture. He pulls in Paul Broad, the former chief executive of Snowy Hydro who was hired by NSW Premier Dominic Perrottet.

“Our Australian coal is the cleanest. Paul Broad said if the whole world used our coal, the world’s emissions would be reduced by 30 per cent,” he says.

Soul Patts has new energy investment through copper and zinc in a 30 per cent share of Aeris Resources, and the electrical engineering business Ampcontrol that targets energy transition in mining. “We think that a pick-and-shovel approach is the right way to play it rather than having to invest in the renewable energy project itself, which a lot of people haven’t done particularly well in,” says Barlow.

Soul Patts’ symbiotic cross-investment is Brickworks, with manufacturing in Australia and the US. Millner says chief executive Lindsay Partridge’s warnings on gas constraints and energy prices have come true. Brickworks has locked in long-term supply contracts in both countries, including this week’s renegotiation of a deal with Santos for 11 years for between $11 and $12 a kilojoule.

Energy prices have up-ended the global brick supply chain. Britain imports 800 million bricks a year but Millner says it can no longer source from Europe, with energy costs as high as $US100 a kilojoule. “They’re now talking to us about importing bricks from America and they might even take them from Western Australia,” he says.

Millner has no regrets in moving to underweight in property, given the $2bn property exposure that Brickworks holds.

Neither Millner nor Barlow will predict the outcome of the upcoming ACCC decision on the TPG deal with Telstra.

“I’ve got rural properties out in the bush and everybody I talk to is more than happy, they want three players. To me, that’s what competition is,” says Millner.

“There are two players at the moment, TPG goes out there, you have three players.”

Whether the regulator sees the number one and three players joining forces as anti-competitive is one of the big business stories to come ahead of Christmas.

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