The Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) (WHSP) share price is in focus after reporting a solid set of numbers in the FY22 half-year result.
WHSP is a large diversified investment house. It invests in other listed shares and has a growing private business investment portfolio.
WHSP’s strong HY22 result
WHSP acquired the old listed investment company (LIC) called Milton during the period. It issued new WHSP shares to fund the purchase, enlarging the company. Therefore it has reported some overall numbers, per-share numbers and numbers that show the performance as if WHSP hadn’t bought Milton.
Here are the overall numbers that WHSP normally reports:
- Regular profit after tax up 281% to $343.7 million
- Group statutory loss after tax of $643.1 million
- Pre-tax net asset value is now $9 billion
- Net cash flows from investments up 114% to $182.6 million
- Interim dividend per share up 11.5% to $0.29 per share
According to management, the regular profit excludes one-off items and better reflects the underlying performance of the portfolio.
The statutory net profit was affected by the one-off, non-cash impairment of goodwill from the Milton merger.
Excluding the acquisition of Milton, net cash flow from investments was up 81%. As a result of the merger, the net cash flow per share increased 42% in the first half.
The pre-tax net asset value per share went up 3.4% for the period, outperforming the market by 8.6%. This is helpful for the long-term growth of the WHSP share price.
Investment highlights
During the period, WHSP sold its Australian Pharmaceutical Industries Ltd (ASX: API) stake to Wesfarmers Ltd (ASX: WES). A further top-up payment will be received in March 2022.
WHSP said that New Hope Corporation Limited (ASX: NHC), Tuas Ltd (ASX: TUA) and Pengana Capital Group Ltd (ASX: PCG) did well. This was offset by Apex, Brickworks Limited (ASX: BKW) and TPG Telecom Ltd (ASX: TPG). These investments have the most significant influence on the WHSP share price because they are the biggest positions.
New Hope just announced a very strong result, with a massive increase in dividends. This will help WHSP’s cash flow, in the short-term at least.
The investment company said its large-cap portfolio of ASX shares was $3.4 billion in size, being 37% of the portfolio. The total return of this portfolio was negative 3.2%, outperforming the ASX 200 Accumulation Index’s return of negative 3.8%. The portfolio was actively rebalanced in the context of broader WHSP exposure and the rising interest rate environment.
Its private equity portfolio, including Ampcontrol, Round Oak and agriculture, delivered $30.5 million of net profit, with a 274% increase of its net cash flow contribution. It’s expecting to keep investing in this portfolio of private investments, with multiple avenues for growth in existing and new opportunities.
The small-cap portfolio delivered a total return of 6.5%, an outperformance of 11.1%. It has ample liquidity to increase the size of this portfolio if opportunities present themselves.
WHSP’s structured yield portfolio delivered 19% net cash flow growth to $10.9 million.
Outlook and final thoughts on the WHSP share price
WHSP says that the business continues to be robust, with strong profit and dividend growth. It noted that it was a net seller and increased liquidity levels by around $350 million ahead of recent volatility.
It said that valuations across a range of asset classes are becoming more reasonable and it’s seeing strong opportunities to deploy capital across private equity and structured credit.
New Hope continues to provide a nice cash flow boost to WHSP. The size of the dividend increase was a pleasant surprise. It makes WHSP a more attractive option for income, in my opinion. It’s one of my preferred ASX dividend shares.
