The Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) (WHSP) share price will be in focus after delivering its FY21 result to the market.
WHSP is an investment house that has a large investment portfolio in different sectors like telecommunications, building products, resources and property.
WHSP FY21 result
The investment house reported that its group regular net profit after tax (NPAT) rose by 93% to $328 million. This represents the underlying ongoing profit generated by WHSP’s portfolio that it owns.
This regular profit increase thanks to growth in building products and land revaluations, increasing the contribution from Brickworks Limited (ASX: BKW) by 95%.
There was a significant improvement in Round Oak, which was a rise of $103 million.
The third major profit increase came from New Hope Corporation Limited (ASX: NHC) where a strong recovery in coal prices increased the profit contribution by 45% year on year.
However, the official statutory profit fell 71% to $273 million due to a $1 billion one-off gain in FY20 as a result of TPG Telecom Ltd (ASX: TPG) no longer being an ‘equity accounted associate’ in the financial accounts.
But WHSP likes to look at its portfolio value and cashflow (which funds the dividends) as key measures of success.
The WHSP portfolio value increased 12% over FY21 to $5.8 billion. However, net cash from investments was down 29% to $180 million. But it was 6% higher than FY19.
Dividend increase
The board has decided to pay a final dividend of 36 cents per share. That brings the total dividend for FY21 to 62 cents per share, an increase of 3.3%. It’s the 21st year of consecutive increases for the annual dividend.
Milton Corporation Limited (ASX: MLT) acquisition
WHSP is on track to complete the acquisition of Milton by issuing new shares to Milton’s shareholders. The completion is expected to be 5 October 2021.
This is expected to allow WHSP to diversify its portfolio and provide funds to pursue new investments in growth asset classes. It will also increase cash generation and increase the net asset value (NAV) per share.
In terms of areas of interest, the company mentioned private equity, ‘structured yield’ (higher yield), emerging companies, global equities and real assets & property.
The investment house is looking at particular themes: health and ageing, energy transition, agriculture, financial services and education.
Summary thoughts on the WHSP share price and result
I believe that WHSP is one of the best businesses on the ASX. Its portfolio is good, growing and diversified. The areas it’s looking at for more investments seem like attractive places to look.
However, the WHSP share price is currently at an expensive premium to the underlying portfolio value. The Milton merger (and issuing new shares at a premium to the NAV) may help with the premium a bit, but I wouldn’t call it great value.
I’m a very happy long-term shareholder, however I’m going to bide my time for a better buying price. There are other ASX dividend shares I’m going to focus on.
