Why Soul Patts (ASX:SOL) Shares Are Jumping

The Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) share price jumped 3% today after the investments business reported its FY19 result to the ASX.

What Is WHSP?

Soul Patts or WHSP is an investment house business which has been on the ASX for over a century.

Its origins are in owning and operating Australian pharmacies, which is where the Soul Pattinson chemist chain comes from. However, that business is now owned by Australian Pharmaceutical Industries Ltd (ASX: API), which WHSP owns 19.3% of. WHSP invests in a large number of companies across a variety of industries such as construction, resources and telecommunications.

The Result

In short, WHSP reported:

  • Regular net profit fell by 7.2% to $307 million
  • Net profit after tax declined by 7.1% to $248 million
  • A final dividend of 34 cents per share

Under The Hood

WHSP’s resources division, Round Oak Minerals, experienced an after tax loss of $54.1 million (FY18’s loss was $9.7 million). Round Oak’s losses increased because of start-up development expenses for new projects, delays at all north west Queensland operations due to extreme weather, and a reduction in production volumes & increased operating costs at ‘Jaguar’ to “realign legacy mining sequence and open up new mining fronts”.

The performances of WHSP’s other holdings were a mixed bag.

TPG Telecom Ltd (ASX: TPM) continues to suffer from NBN margin compression and had to cancel its Huawei 5G mobile plan. However, if the merger goes ahead with Vodafone, WHSP expects dividends from TPG to increase.

Brickworks Limited (ASX: BKW) reported a slight increase in continuing underlying profit. The Australian building products division was hurt by energy prices and a downturn in construction, but the US division exceeded expectations.

New Hope Corporation Limited’s (ASX: NHC) profit before tax rose 3% and it continued to pay a large dividend to WHSP, although it’s still waiting for regulatory approval for the New Acland Mine Stage 3 project.

WHSP Dividend

WHSP is known for its ever-growing dividend. The WHSP Board increased the final dividend by 3% to 34 cents per share. This brings the full year dividend to 58 cents per share, an increase of 3.6%.

The dividend is funded by regular cash inflows (from dividends, interest etc) less regular operating expenses. WHSP calls this measure the net regular cash from operations, which grew by 18.1%. Meaning the dividend payout ratio decreased and it’s well positioned to keep growing dividends.

Time To Buy SOL Shares?

The pre-tax value of WHSP increased by 0.6% over the year to $5.5 billion, so at today’s share price it’s trading at a small discount to its total underlying value.

However, the main attraction for many investors is probably its sustainable growing dividend. The fully franked yield currently stands at 2.6%, which is not too bad in this low-interest-rate environment.

I’m interested in buying WHSP shares at this share price, as I think it’s one of the few good investments you can put in the bottom drawer for a decade or more.

Disclosure: Jaz owns shares of Washington H. Soul Pattinson and Co. at the time of writing, but this could change at any time. 

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