Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) has reported its FY20 result and increased the dividend.
WHSP FY20 report
WHSP is a complex business. It’s an investment house with many different investments which contribute to WHSP’s profit in different ways.
The investment house reports a number of different profit measures.
Regular profit
WHSP reports regular profit after tax, which represents continuing operations before non-regular items. It represents WHSP’s share of the profit from its underlying investments. For example, WHSP owns 50% of New Hope Corporation Limited (ASX: NHC) which generated $84 million of normal net profit, so the contribution to WHSP’s overall regular net profit was $42 million.
WHSP reported that FY20 group regular profit after tax was down 44.7% to $169.8 million. There were three main reasons for this: New Hope experienced falling coal prices and lower Acland production, COVID-19 related impacts hurting the Brickworks Limited (ASX: BKW) building products earnings (the FY20 result was covered here) and TPG Telecom Ltd (ASX: TPG) earnings were impacted by merger account and the NBN migration of subscribers.
Statutory profit
WHSP reported that its statutory profit after tax rose 284.3% to $953 million.
This was largely due to the TPG merger with Vodafone. Previously, TPG counted as an associate investment of WHSP – that meant that the TPG share price movement didn’t affect the accounting profit each year – positively or negatively.
However, because it’s no longer an associate investment due to WHSP’s holding falling to 12.6% of the combined TPG-Vodafone, WHSP recognised a non-accounting gain of $1.05 billion this year.
WHSP pre-tax net asset value (NAV)
This measure is meant to represent the underlying pre-tax value of WHSP’s assets if it were to try to sell everything it owns.
WHSP’s NAV fell 5.3% in FY20 due to the market crash caused by COVID-19. Over the 12 months, the biggest change was the $498 million (or 47.8% in percentage terms) decline of its New Hope shares value. There was a $331 million increase from the telecommunications portfolio (up 20.2%) from a strong performance from TPG from the positive news of the merger.
The investment house boasted that its net asset value outperformed the S&P/ASX All Ordinaries (ASX: XAO) by 6.9%. However, the share price + dividend return (‘total shareholder return’) was -11.4%, underperforming the index by 2.4%.
Over the past five years and 20 years the WHSP total shareholder return has been better than the index by an average of 5.1% per year and 5.2% per year respectively. That’s solid outperformance in my opinion.
Net cash flows from investments
This is essentially the cashflow paid to WHSP from its subsidiaries and from the dividends of its investments, and after paying costs.
Net cash flows rose 48.8% to $252.3 million largely thanks to the special dividend paid by TPG due to the merger.
Other dividend income was largely similar, though some investment income in FY21 may be impacted.
WHSP dividend
The investment house continued its dividend record. It has now increased its dividend for 20 years, going back to 2000.
It has declared a final dividend of 35 cents per share, a 2.9% increase. That brings the total dividend to 60 cents per share – up 3.4%.
Summary
This was a mixed result from WHSP. A good outcome from TPG’s merger was offset by difficulty for New Hope. COVID-10 is impacting its other investments, some more than others.
In FY21 the company still sees volatility and uncertainty. However, its flexible investment mandate will allow it to adjust the portfolio over time. WHSP thinks there will be opportunities as it has ample liquidity to take advantage of any opportunities.
Is WHSP worth buying? For the long-term I think it probably is. It doesn’t have much pure technology exposure, so its growth isn’t going to be huge. It’s a slow-and-steady grower with rising dividends. If you like that idea then WHSP could form part of a solid portfolio. However, the WHSP share price has risen in September, so there may be a cheaper price in the coming weeks.
Along with WHSP, I think other ASX dividend shares could be worth buying like APA Group (ASX: APA) which I wrote about here.
