This seems like a great time to buy Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), or WHSP, shares in my opinion.
If you haven’t heard of WHSP before, it’s one of the oldest businesses on the ASX. It has actually been operating for over a century. I think this shows it has already demonstrated impressive staying power.
It started off as a pharmacy business, but it’s now a diversified investment business. That means it’s invested in a bunch of different businesses and industries.
What does it own?
It has a few different segments to its business.
WHSP owns a ‘strategic’ portfolio, where it has a large ownership of some businesses including TPG Telecom Ltd (ASX: TPG), New Hope Corporation Limited (ASX: NHC) and Pengana Capital Ltd (ASX: PCG).
It has a ‘large business’ portfolio with names like Macquarie Group Ltd (ASX: MQG), Commowealth Bank of Australia (ASX: CBA) and Wesfarmers Ltd (ASX: WES).
WHSP also has a private equity, or private business portfolio. Businesses inside this division includes agriculture, electrical parts, financial services and swimming schools.
It’s also invested in areas like smaller businesses, corporate loans and hybrid debt instruments, and property.
Why is it a good time to buy WHSP shares?
The share market is seeing pain because central banks like the RBA are increasing the interest rate to tackle inflation.
Over the past year, the WHSP share price has declined by more than 20%. That’s a large drop for such a diversified, defensively-focused business.
It aims to build a portfolio of assets that have “strong defensible cash flows” as well as growing earnings and dividends.
A cheaper price for this ultra-long-term business is attractive to me, particularly as it continues to build its portfolio and invest in more things that can generate more earnings and grow the portfolio.
WHSP has grown its dividend every year going back to 2000. Its dividend is funded by the dividends that WHSP receives – it keeps some – say 20% to 30% – of that cashflow after paying for its operating expenses and paying a dividend to shareholders. That retained money can be invested into more opportunities.
In my view, the lower WHSP share price is good, particularly as in the FY22 result it said that the share price at 31 July 2022 represented a 6.9% discount to the underlying value of the business.
At 31 July 2022, WHSP had delivered an average total return of 10% per year over the prior decade, compared to a 9.6% average return per annum. It won’t necessarily deliver this sort of return over the next few years, or keep outperforming, but I think it’s worth knowing what the last 10 years has shown.
I like the diversification and flexibility of this business, combined with its history of being defensive and outperforming over the long-term.
