Washington H Soul Pattinson & Company Limited

SOL Details

Change of Interests: Washington H Soul Pattinson & Company Limited (ASX: SOL) is an Australian based investment company, driving revenue through stakes in coal mining, gold, and copper mining, refining operations, and consulting services. As per a recent update, Washington H. Soul Pattinson and Company Limited has changed shareholding in Kiland Ltd (ASX: KIL) and has increased its voting power to 16.54%, from the previous 15.13%.

AGM Update:

• The group’s regular net profit after tax (NPAT) stood at $328 million in FY21, up a whopping 93% on the previous corresponding period. Bottom-line increased owing to significant growth in building products and favourable land revaluations, along with higher investments.
• Strong trading conditions across the portfolio contributed to a $5.8 billion in the pre-tax value of the portfolio in FY21, depicting a rise of 12% on pcp. Pre-tax value of the portfolio (per share) improved by 17.3% on pcp to 30 November 2021.
• Notably, SOL has increased its dividend year over year since 2000, being the only company in the All-Ordinaries Index to depict such rise. The company has paid a final dividend for FY21 of 36cps, taking the total dividend to 62cps, indicating a rise of 3.3% year over year.
• The company’s diversified portfolio has again delivered outstanding results for shareholders, with a Total Shareholder Return (TSR) of 13.4% based on the last 20 years (outperforming the All-Ordinaries Accumulation Index of 8.7%).
• SOL’s net asset value (pre-tax) rose by 17% for the last 12 months as at 30 November 2021. Resilient cash generation from the portfolio enabled a higher return to investors.

Dividend Trend (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the risk associated with the changes in coal supply, changes in international freight rates and the cost of substitutes for coal. The company’s performance may get impacted by general economic activities, changes in foreign exchange rates, and changes in coal demand.

Outlook: The company aims to offer higher returns to shareholders over the long term by creating capital growth and steadily increasing dividends. A merger with Milton Corporation will offer greater portfolio diversification and additional liquidity for future investments. Further, the merger is expected to aid SOL to massively increase its market capitalisation stemming in increased index participation.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative) 

 Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of the company has been corrected by ~19.74% in the past three months. Currently, the stock is trading below the average of its 52-week high and low levels of $40.8 and $26.61, respectively. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount as compared to its peers, considering fluctuation in coal supply, changes in macroeconomic factors, etc. For the purpose of valuation, peers such as Santos Ltd (ASX: STO), New Hope Corporation Ltd (ASX: NHC), Woodside Petroleum Ltd (ASX: WPL), and others have been considered. Considering the potential diversification benefits higher investments, mergers synergies, improved net asset value, current trading levels, and indicative upside in the valuation, we give a ‘Buy’ rating on the stock at the current market price of $30.12, as of 23 December 2021, at 12:30 PM (GMT+10), Sydney, Eastern Australia.

 SOL Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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