GuruFocus -
- Net Cash Flows from Investments: Increased 10.3% to $468 million.
- Final Dividend: $0.55 per share, bringing total dividends for the year to $0.95, up 9.2% from the prior year.
- Net Asset Value (NAV) per Share: Increased 12%, with NAV at $11.8 billion, up $900 million from the previous year.
- Net Profit After Tax: $499 million, down 28% from the previous year.
- Total Transaction Activity: $4.7 billion, including acquisitions and sales.
- Cash Reserves: Decreased from $911 million to $214 million, resulting in a net debt position of $160 million.
- Strategic Portfolio Return: 11% for the year.
- Large Caps Portfolio Return: 14.1%, generating $313 million in returns.
- Private Equity Portfolio Return: 15.9%, with the portfolio size growing by 32.2% to $1.6 billion.
- Emerging Companies Portfolio Return: 16%, outperforming the Small All Ordinaries Accumulation Index by 6.7%.
- Credit Portfolio Return: 14.9%, with cash received from the portfolio up by 161.3% to $108.4 million.
- Total Shareholder Return (TSR): 11.7% per annum over the last 20 years.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Washington H Soul Pattinson & Co Ltd (ASX:SOL) reported a 10.3% increase in net cash flows generated by investments.
- The company declared a fully franked final dividend of $0.55, bringing total dividends for the year to $0.95, up 9.2% from the previous year.
- Net asset value per share increased by 12%, with the total portfolio valued at $11.8 billion, $900 million higher than the previous year.
- The private equity portfolio delivered a 15.9% return, growing by 32.2% due to new investments and valuation uplift.
- The emerging companies portfolio performed strongly, returning 16% and outperforming the Small All Ordinaries Accumulation Index by 6.7%.
- Net profit after tax was $499 million, 28% lower than the previous year, primarily due to lower results from Brickworks and New Hope.
- The strategic portfolio underperformed the All Ordinaries Accumulation Index, returning 11% compared to the index's 13.4%.
- Cash reserves decreased significantly from $911 million at the end of 2023 to $214 million at year-end, leaving the company in a net debt position of $160 million.
- The large caps portfolio saw a 25% decrease in cash generated due to net selling in 2023.
- The company faced challenges with TPG and Aeris, which were the largest detractors to performance due to operational issues and market volatility.
A: (Todd Barlow, CEO) It is a very high-performing portfolio. We found another $500 million of opportunities throughout the year, maintaining a near 15% yield. These are highly structured and engineered solutions for our counterparts who slip through the gaps, whether it's from the bank or for whatever reason don't want to raise equity. We provide those solutions for them.
Q: What motivated Soul to establish a DRP after not having one for so long? Will it be a permanent feature?
A: (Todd Barlow, CEO) It was due to numerous inbound requests from shareholders. Our previous attitude was that people could take their dividends and buy shares on the market. Given the demand, the Board agreed to implement one, and there's no reason why we shouldn't maintain it.
Q: The emerging companies portfolio has grown significantly by 68.2% and outperformed its index by 6.7%. What specific market trends or sectors are you focusing on within this portfolio?
A: (Brendan O'Dea, CIO) The big change this year is an investment in NexGen Energy (TSX:NXE), a uranium opportunity based in Canada. Thematically, the portfolio is heavily exposed to energy. We are excited by energy across all our portfolios.
Q: Is it likely that Soul's portfolio of listed investments will outgrow the Australian market, leading to a significant international listed portfolio?
A: (Todd Barlow, CEO) We are a very small part of the Australian market. We are increasingly looking at global markets, focusing on offshore exposure to private markets, private equity, and credit. Our existing portfolio already has a significant global complexion.
Q: The portfolio underperformed the All Ords Accumulation Index by 1.4% in FY24. What strategies or asset rebalancing initiatives are in place to improve performance?
A: (Brendan O'Dea, CIO) We focus on long-term performance. The move into private assets like private equity and private credit is designed to generate better returns over time. Our listed portfolio and emerging companies portfolio performed strongly this year.
Q: Are you comfortable being net debt, or do you prefer to be net cash? Where do you expect to be in FY25?
A: (Todd Barlow, CEO) Right now, we are slightly net cash post the capital raise. We are happy to go into slight net debt but will never be heavily geared. We might consider up to 10% gearing in the portfolio for new opportunities.
Q: Could you talk a little bit about the private equity businesses you increased your investment in this year?
A: (Brendan O'Dea, CIO) We had an uplift in valuations across the portfolio and invested around $195 million in a packing facility. Our ag portfolio is between $550 million and $600 million in size. We are happy to reinvest in the growth of our private equity portfolio.
Q: How are you approaching the emerging macro trend of intergenerational wealth transfer in the strategic horizon?
A: (Todd Barlow, CEO) We are tackling this with Ironbark, a significant and growing business in the wealth management industry in Australia. We believe in the need for good advice and products due to growing superannuation balances.
Q: Can you describe the valuation process for the private credit equity? Do you have any exposure to Star Group?
A: (Todd Barlow, CEO) We are a member of the group of lenders to Star and will contribute more capital. We conduct a thorough valuation for private equity assets and put in place expected credit losses against any portfolio position.
Q: Are you comfortable with the TPG investment considering the continued loss of share to newcomers?
A: (Todd Barlow, CEO) We had a difficult year in terms of share price reduction, but the fundamentals of the business are strong. The regional sharing with Optus' network and the potential separation of the fiber network infrastructure are exciting developments.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.