Washington H Soul Pattinson & Company Limited (ASX:SOL) Managing Director, Todd Barlow talks about the company’s investments and outlook
Washington H Soul Pattinson & Company Limited (ASX:SOL) was incorporated over 140 years ago as a chemist on Pitt Street, in Sydney. The pharmacy operations performed very well and they eventually were listed on the Stock Exchange in 1903. Today, WHSP is the second oldest listed company in Australia. The current Chairman, Robert Millner is the fourth generation of family members to lead the company. And we have a market capitalisation of $3.8 billion, making us one of Australia’s largest 100 companies. And we have a diversified suite of assets, across a range of different industries.
So the original chemist operations started reinvesting the profits into a range of different industries. And they became very savvy investors, adopting a very value driven conservative approach, spreading their risk amongst a number of different assets and taking a long-term approach. We’ve adopted those tried and true methods of investing, which have been successful over a long period of time. And we continue to invest in the same style.
Once we’ve made the investments, we tend to try to add value to those investments by encouraging them to grow, with access to capital and through M&A. So if you look at some of our largest investments like Brickworks Limited (ASX:BKW), New Hope Group (ASX:NHC) and TPG Telecom (ASX:TPM), they’ve all have been very successful in making a lot of very high growth acquisitions along the way.
We have a very disciplined approach to making investments. We don’t make a large number of investments, but they tend to be few and far between and they’re highly concentrated. We have a very active Board, who look at each new investment opportunity. We build up a lot of industry knowledge, we find good quality companies with solid management and we try to buy at the cheapest possible price. We’re also assisted by the fact that we have our own investment bank, Pitt Capital Partners, who not only assist us to assess the opportunities, but also assist in the generation of deal flow.
The highlight for the half-year was the cash flow generation from our portfolio, which is our dividend and interest income. That was up 25 per cent on the prior year. It’s that figure that we look at when we declare dividends. In addition to the cash generation, the share price in the portfolio itself grew quite rapidly. For the 12 months to 31 January, the total shareholder return was up 34 per cent. In that same period, the all ordinaries accumulation index was down 4.7 per cent.
So it’s quite a lot of outperformance in the last 12 months. But despite that being obviously a very good outcome, more important to us is the long-term performance of the business. And over the last 15 years, the compound annual growth of the company’s been 14 per cent, which is about double what the index have returned over that period.
The interim dividend this year was 21 cents, which is up five per cent on the previous year. And pleasingly, that extends Soul Pattinson’s long history of paying increased dividends. We’re one of only two companies in the all ordinaries, who have increased dividends every year, for the last 15 years.
So at the end of the half, our total assets were $5.4 billion pre-tax. About 82 per cent of that portfolio was in our top seven major strategic investments. And of the remaining 18 per cent, which is roughly $1 billion, most of that is comprised of blue chip ASX listed companies. About $630 million invested in the market, which is a highly liquid portfolio and we can access that portfolio for new investment opportunities. We also have about $280 million invested in private equity and property.
The star performer is clearly TPG, it’s now our biggest investment and accounts for about 40 per cent of our portfolio. When we merged our company with TPG in 2008, the combined market capitalisation was under $250 million. Today that business is worth $9.8 billion and our shares were $2.4 billion. So it’s been a very impressive journey for us.
In terms of our exposure to resources, we have about 15 per cent of our portfolio in New Hope Corporation, which is exposed to the coal cycle. We believe strongly in the return of the coal cycle and New Hope’s just recently made quite a large acquisition of an interest in Bengalla, a coal mine in the Hunter Valley for $850 million, which is one of Australia’s best thermal coal assets.
The markets are very volatile and as I mentioned, we still have quite a lot of exposure to the downturn in the coal cycle. But our other major investments, such as TPG, API Limited (ASX:API) and Brickworks are growing very very strongly. And we believe that we’ll continue to perform in this very difficult time.