The Millner family’s main investment vehicle, Washington H. Soul Pattinson and Company has gone on a defensive footing as it revealed a 24.1% higher interim dividend after lifting profit 38% to $475.7 million in the six months to the end of January.
Soul Patts will be an interim of 36 cents per share, up from 29 cents per share previously.
The interim results revealed some significant changes in approach for the investment house as it went for safety in the midst of growing market volatility.
The company pushed more money into higher yield investments and agriculture and ‘real’ assets in the half year.
CEO Todd Barlow explained in Thursday’s statement, “The portfolio is defensively positioned, we are holding a material cash position, and our 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.
“During the half we reduced our exposure to listed equities, particularly cyclicals and growth stocks, and invested over $400 million into private equity and structured yield products.
“Around 20% of the portfolio is 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.”
Looking at the six months to January, chair Rob Millner said:
“The main contributor to this growth was our Strategic Portfolio investments, buoyed by commodity tailwinds, along with solid gains from Brickworks and Apex Healthcare. The portfolio is defensively positioned with a current bias toward alternative assets and cash reserves.
“WHSP has continued to actively manage investments across all portfolios, with $1.3b in transaction activity during 1H23. WHSP was a net seller across Large Caps and Emerging portfolios, reducing exposure to cyclicals and growth stocks in an inflationary environment.
“Higher yielding instruments, such as private credit, is (sic) offering more attractive, risk-adjusted returns with WHSP investing an additional $267.9m into the Structured Yield portfolio, increasing its value to $483.4m or ~5% of the Group. As our fastest growing portfolio it contributed $18.8m in net cash flows, an increase of 72.5% vs pcp,” Millner said.
“The Private Equity portfolio continued to assess value-accretive acquisition opportunities and deployed a further $152.8m into agricultural and real assets, taking the total size of this portfolio to $810.2m or ~8% of the Group.”
The company had a total cash balance at the end of the half of $597.3 million, 257.7% higher than the end of the January, 2022.
“The Property portfolio contributed to these cash reserves following the settlement of the Castle Hill (in Sydney) sale in December for $88.5m, 4.5x the original purchase price in 2014.”
Soul Patts shares ended the day up 1.3% at $28.91 when the wider market was down nearly 0.7%.
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Thanks to its growing property business and rising returns from investments – and not its bricks and tiles operations – Brickworks Limited boosted underlying net after tax earnings from continuing operations 24% to a record $410 million for six months to January 31.
Brickworks’ result was dominated by a surge in earnings from its growing property involvement (which fits into the new investment approach of Soul Patts, its major shareholder).
Including significant items and discontinued operations, Brickworks’ statutory after-tax profit was smaller at $354 million, down 38%.
But that was because prior corresponding period was boosted by a significant one-off accounting profit a year earlier in relation to the deemed disposal of Washington H Soul Pattinson shares upon its merger with Milton.
The company said that underlying earnings before interest, tax and depreciation (EBITDA) from continuing operations were $607 million, up 25%, while EBIT was $569 million, up 26%.
Interim dividend was 23 cents per share, up a princely one cent per share from the previous corresponding period’s 22 cents.
Once again, Brickworks said its property division “was a standout, with the highlight for the half being the sale of Oakdale East Stage 2 into the Industrial JV Trust with Goodman Group.”
“Property earnings were also supported by the completion of a number of new developments at the Oakdale West Estate, in Western Sydney. In addition, a strong uplift in market rent for prime industrial property underpinned a revaluation gain, despite the impact of increasing capitalisation rates.
Across the rest of the portfolio, the contribution from Investments was higher, and earnings from Building Products was relatively steady.
Property delivered another stellar result in the first half, generating EBITDA of $453 million, up by 26%. The $301 million sale of Oakdale East Stage 2 into the Industrial JV Trust delivered earnings of $263 million, after taking into account the book value, rehabilitation provisions and transaction costs.
Industrial JV Trust assets were revalued during the period, resulting in a profit of $113 million while a development profit of $54 million was also recorded, following the completion of new facilities at the Oakdale West Estate during the period.
Brickworks said that its Australian building products group (bricks and tiles mainly) lifted revenue 11% to $364 million but EBITDA was down 6% to $50 million for the six-month period.
“The decrease in earnings was primarily due to a decline in Bristile Roofing and Austral Bricks Western Australia, with most other business units recording improved earnings,” the company said..
Earnings within Austral Bricks were higher than the prior period, on the back of a strong performance in our two largest markets – NSW and Victoria while improved earnings were also recorded by Austral Masonry and Southern Cross Cement delivered a strong uplift in earnings.
In North America, sales revenue rose 18% to $220 million and EBITDA was up 16% to $14 million. That was, in the company’s words, “despite the ongoing impact of cost inflation and labour shortages across many operations.”
EBITDA from investments jumped 37% to $100 million for the half year.
Investors gave the results a solid tick with the shares rising more than 3% to $23.76.
