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Why WHSP (ASX:SOL) may be the best long-term ASX share

I think that Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) could be the best ASX share to buy for the long-term.

History of WHSP

WHSP was incorporated in January 1903 , meaning it’s over a century old. Before that it traded as two separate pharmacy businesses, Pattinson and Co. and Washington H. Soul and Co. Caleb Soul and his son Washington opened their first store at 177 Pitt Street, Sydney, in 1872, while Lewy Pattinson opened his first pharmacy in Balmain in 1886.

The company listed onto the stock exchange on 21 January 1903. It has survived through world wars, various recessions and even the Spanish Flu around 100 years ago.

Employees stick around in the company for a long time. That’s a good sign, both of the culture and for the continuity of the business. WHSP says that more than 40 employees have worked for the company for over 50 years. Five generations of the Pattinson family have served the company, as have three generations of the Dixson, Spence, Rowe and Letters families.

What it aims to do now

WHSP isn’t just a pharmacy business any more. It’s an investment house, meaning it takes (usually) long term stakes in businesses that it aims to be a partner with for many years.

Whilst pharmacies are no longer the focus, it still owns 19.3% of Australian Pharmaceutical Industries Ltd (ASX: API) which is one of Australia’s biggest pharmacy businesses. API operates a number of brands including the national networks of pharmacy chains Priceline and Soul Pattinson.

WHSP has a fairly defensive investment strategy. It says that it: “holds a diversified portfolio of uncorrelated investments across listed equities, private equity, property and loans. Its flexible mandate is a key advantage to generating returns by allowing WHSP to make long-term investment decisions and adjust the portfolio by changing the mix of investment classes over time.”

It aims to give shareholders a mix of capital growth and steadily growing dividends.

Other major existing investments

The performance of a company like WHSP or a LIC (or ETF) is essentially decided by the performance of the underlying investments. The biggest investments in WHSP’s portfolio will have the biggest influence on its overall returns.

Here are some of WHSP’s biggest investments right now:

TPG Telecom Ltd (ASX: TPG)

WHSP now has a 12.6% shareholding of the combined telco.

TPG is one of the main telcos in Australia after a ‘merger of equals’ with Vodafone. WHSP believes that these are complementary assets generating growth opportunities and synergies.

Aside from the pleasing organic opportunities, it could also lead to higher dividend income to WHSP.

This is a defensive investment, most people will want to keep paying and accessing the internet.

Brickworks Limited (ASX: BKW)

WHSP owns 43.9% of Brickworks.

Brickworks is one of the biggest building product companies in Australia. It’s the market leader of bricks in the country, it also has a strong market position in the north east of the US after some acquisitions.

Brickworks also owns around 40% of WHSP, plus it owns half of an property trust which focuses on industrial properties.

Each division of Brickworks has compelling long-term growth plans.

New Hope Corporation Limited (ASX: NHC)

WHSP owns half of New Hope.

New Hope is one of Australia’s largest coal miners and one of the lowest-costing miners globally.

Coal may be slowly on the way out, but WHSP believes that Asian demand will help New Hope to generate profit over the next couple of decades.

Smaller investments

WHSP is invested in a variety of other assets including two of the oldest listed investment companies (LICs) BKI Investment Company Limited (ASX: BKI) and Milton Corporation Limited (ASX: MLT) – it owns 8.6% and 3.3% respectively.

It wholly owns mining and exploration company Round Oak, which is focused primarily on copper, zinc and gold.

WHSP owns 30.3% of Apex Healthcare Berhad (APEX.MK), an Asian healthcare business which has operations in Singapore, Malaysia, Vietnam and Myanmar.

The investment house owns almost 20% of Palla Pharma Ltd (ASX: PAL), one of nine companies licensed worldwide to manufacture narcotic raw material for the international pharmaceutical industry.

It owns 43.3% of Ampcontrol, international supplier of electrical and electronic products with a large presence in providing products and services to the mining sector.

WHSP owns 22.6% of Clover Corporation Limited (ASX: CLV), which provides ingredient products to effectively enhance the nutritional content of items like infant formula.

It’s invested in other areas like financial services, a corporate advisory firm, real estate and swimming schools.

WHSP also has a small cap portfolio worth $249 million and a large cap portfolio worth $262 million. Both of these portfolios outperformed the ASX index over WHSP’s FY20.

New investments

The business is always working on expanding its existing portfolio of investments to add more growth opportunities and diversify its portfolio.

It recently invested a material amount into various agricultural assets (managed by Argyle Capital Partners) including citrus, macadamias, avocados, stone fruit and table grapes. WHSP believes these will benefit from the opening up of foreign trade. This was during FY20, you can read the 2020 financial year write up here.

According to AFR Street Talk reporting, WHSP is going to invest in data centres. It’s going to work with ‘Leading Edge Data Centres’ which builds, owns and runs small data centres which are located close to the users which will help faster processing and speed up applications on devices. Data centres is a promising industry because many users are now outsourcing data storage instead of having the computing power on site. WHSP will take part with a large stake with its unlisted investment portfolio. The AFR understands Leading Edge has the right relationships, sites and configuration to do it well and profitably.

Extraordinary dividend record

WHSP is the only company in the ASX All Ordinaries Index to have increased its dividend every year since 2000. In FY20 it grew its dividend by 3.4%.

Over the past 20 years WHSP has grown its ordinary dividend at a compound annual growth rate (CAGR) of 9.2%.

It’s very reassuring to have such a strong dividend record as a long term investor. Dividends are not guaranteed, but WHSP wants to grow its dividend each year as low as its cashflow allows.

In the FY20 result, WHSP managed to grew its net cashflow by 48.8% to $252.3 million

Why I think it could be the best long-term ASX share

When you’re investing in something for the long-term, potentially forever, you’re going to get some benefits.

Making investment gains is great, but if/when you sell you’ll probably have to pay taxes on the capital gains – this would reduce your overall investment return after tax. But if you can own something and never sell it then you can benefit enormously.

I think WHSP is a great candidate to own for the ultra long term. It has already been going for over 100 years. Its portfolio is becoming increasingly diversified. Currently there is a focus on telecommunications, resources and building products, but over time I think that concentration will lesson, and shift to better growth areas.

WHSP has beaten the returns of the broad ASX index over the long-term. It’s very stable, with long term focused management who make long term investment decisions.

It has performed well during the COVID-19 period and I think it can keep growing over the decades to come. Australia is an attractive place for WHSP to do business and its underlying businesses are growing internationally such as Brickworks and Tuas Limited (ASX: TUA).

The WHSP share price has risen 15% over the past month, so I’d probably only start with a small buy today. There are other ASX dividend shares that could fit well in a portfolio with WHSP, such as Brickworks and APA Group (ASX: APA), whilst it could also work well in a portfolio with ASX growth shares like Pushpay Holdings Ltd (ASX: PPH) and A2 Milk Company Ltd (ASX: A2M) which I wrote about here.

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At the time of publishing, Jaz owns shares of WHSP.

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