Washington H. Soul Pattinson and Company (ASX:SOL) growth and outlook


by Jessica Amir

Washington H. Soul Pattinson and Company Limited (ASX:SOL) Managing Director and CEO, Todd Barlow talks FY18 results, portfolio and outlook.

Jessica Amir:
Hello I’m Jessica Amir for the Finance News Network. With me today is Washington H. Soul Pattinson Limited’s (ASX:SOL) Managing Director and CEO, Todd Barlow. Hi Todd and welcome to the Network.

Todd Barlow: Thanks for having me.

Jessica Amir: First up, Washington H. Soul Pattinson and Company Limited started as a single pharmacy in 1872. Just tell us Todd, where is the business at today?

Todd Barlow: Our pharmaceutical interests account for about five per cent of our portfolio. We’ve grown to be an investment house with a range of different investments. We’ve got very large investments in a number of large Australian companies like TPG Telecom (ASX:TPM), Brickworks Building Products (ASX:BKW), New Hope Coal (ASX:NHC) and Australian Pharmaceutical Industries (ASX:API). We’re a top 100 ASX company by market capitalisation and we’ve got a long history of outperforming, for our shareholders.

Jessica Amir: And speaking about that outperformance, exceptional set of numbers for FY18. What are some of the highlights?

Todd Barlow: We’ve achieved a record result of AUD$331 million in regular profit, which was up 17 per cent over the year. More meaningful for us is the fact that we grew our portfolio by a billion dollars through the year, and that was up 22 per cent. We paid a higher dividend again to our shareholders, and we’ve done that every year for the last 18 years. We’re only one of two companies in the All Ordinaries Index, who have managed to do that and that’s something we’re very proud of.

And we also continue to outperform from a total shareholder return perspective. So an investment in WHSP over the last 15 years has increased by about 5.3 times, whereas an investment in the Index has gone up by only about 2.8 times.

Jessica Amir: For those who don’t know, just give us an insight to the largest contributors to your growth?

Todd Barlow: Across the portfolio, all our businesses are performing very well. But I’d say the biggest contributor has been the increase in thermal coal prices and some smart M&A which has really helped New Hope Corporation (ASX:NHC) but we’re also seeing building products doing very well and Brickworks (ASX:BKW) has increased its profits. And the merger of TPG (ASX:TPM) and Vodafone (LON:VOD) has been very positive for us, and we think that will be a great outcome for our investment in that business.

Jessica Amir: Now to the portfolio in a little more detail Todd. What are some of the key changes that have taken place?

Todd Barlow: Through the year we continue to invest in financial services. And we also continue to invest in a business called Round Oak Minerals, which is a wholly owned mining company. It focuses on gold, zinc and copper and is building out a portfolio of mines across Australia, which we think is very exciting.

Jessica Amir: The Company has sold its iconic Pitt Street Mall premises. Tell us about the rationale behind that, and where the head office will be moving to.

Todd Barlow: There are very few businesses that can say that they’ve been operating out of the same premises for 132 years. So it was a very sad and emotional decision for us to sell the building. But we’ll be moving to an office in Clarence Street, which is just being completed at the moment, indicative of the principals that everything in our portfolio is for sale at the right price. And if somebody offers us the right price at the right time, then we will happily sell anything in the portfolio.

Jessica Amir: What about investing in tech Todd? Can we expect WH Soul Patts to make an investment in tech, much the same as Berkshire Hathaway Inc. (NYSE:BRK.A) took a holding in Apple Inc. (NASDAQ:AAPL)?

Todd Barlow: WHSP has a long history of investing in tech. We actually started our own telecommunications business a few decades ago, which we merged with TPG. And today that’s a very significant technology and telco business, capitalising on peoples’ use of smartphones and downloading data. We also have a range of different investments in earlier stage tech businesses. But the more meaningful investments that we make tend to be focused on established businesses, with proven cash flows and proven business models.

Jessica Amir: Now to your investment approach. Tell us about the key principals that have really been standing the test of time?

Todd Barlow: I guess nothing has really changed in the way that we invest. It’s principals that have been built up over a long period of time, and it’s really just sensible investing. And we’re very disciplined in the way that we invest. We invest at the right time and we tend to invest for the long-term. So that means that we’re not caught up in short-term noise or speculation. We look for fundamentally good businesses that are mis-priced and take advantage of those opportunities.

We also tend to invest by being a trusted capital partner with our management teams, and invest in e-Companies. We want to partner with them on their growth journey, by providing capital and also encouragement to grow. And we’re opportunistic, we don’t have any fixed mandate, we have a flexible investment approach and we can move very quickly. So that’s a key attribute to the way that we invest.

Jessica Amir: Todd, can you give us a comment about your M&A across your portfolios?

Todd Barlow: We also encourage our investee companies to seek growth through smart M&A. And if you look at the portfolio over the last 10 years and look at the major investments in our portfolio, there’s been a high level of M&A activity, which has increased shareholder wealth quite significantly. M&A done well can add a lot of value and it’s something that we’re very supportive of.

The most recent examples of that M&A is TPG’s (ASX:TPM) merger with Vodafone, which is a AUD$15 billion merger. And New Hope’s (ASX:NHC) acquisition of a further interest in the Bengalla Mining Company, which was $860 million. All of that’s happened in the last two or three months.

Jessica Amir: What’s your outlook for FY19?

Todd Barlow: In these more difficult times where the market's a bit more volatile we would expect our portfolio to outperform and that’s because we have a very defensive portfolio. We have recession proof businesses in TPG (ASX:TPM), peoples’ consumption of mobile and broadband don’t really change with the market conditions. And also the demand for thermal coal is relatively fixed. We think that we should outperform even in quite difficult markets.

Jessica Amir: Speaking about out performance, your share price is at all time highs. What can you tell us?

Todd Barlow: I think it's just indicative of the fact that all of our companies are performing very well. Usually we have a couple of our business doing really well and they are sort of compensating for some of the others but at this point we're very lucky that everything is going in the right direction.

Jessica Amir: Wonderful. Todd Barlow, thank you so much for your time, I appreciate it.

Todd Barlow: Thanks for having me, thank you.


Jessica Amir

Finance News Network
Jessica joined FNN in January 2017 after having worked in financial advising for seven years and in TV journalism for seven years, specialising in finance, equities and analysis. She has interviewed former Prime Ministers of Australia, Tony Abbott, Julia Gillard and Kevin Rudd and ex Treasurer Jo Hockey. Jessica has worked as a journalist with Sky News Business, ABC 1, ABC's The Business, ABC24 and has also been a regional Channel 7 and 9 TV reporter with Prime7 and Win News.