SOL - Washington H. Soul Pattinson and Company

[Belli]

Correct in that SOL has a 39% stake in Pengana, the old NAB stake, but the offer is for shares in the listed fund Pengana Private Equity (PE1) and that is only one of the hats they wear.
FUNDS managed by Pengana

• Australian Equities Fund
• Australian Equities Income Fund
• Emerging Companies Fund
• International Fund
• International Fund - Ethical
• International Fund - Ethical Opportunity
• Pengana International Equities Limited
• Global Small Companies Fund
• High Conviction Equities Fund
• WHEB Sustainable Impact Fund
• Pengana Private Equity Trust

There is that. I looked at it from the perspective Pengana takes fees from the funds of which some flow to SOL and thus to me. That's enough exposure to Pengana for my comfort.

 

[Dona Ferentes]

Washington H. Soul Pattinson and Company (WHSP) lifted its interim dividend by a cent to 25 cents a share, despite a 33% fall in net after-tax profit to $124.7 million.

The company has stakes in Brickworks (which has a similar stake in Soul Patts) as well as a shareholding in New Hope, TPG, API (chemists group) and several other companies in mining, exploration and rural activities and stock market investment.

Statutory group profit after tax was $51.0 million, down 71.5% in the first half of 2018-19. The shares edged up 2.5% to $19.73.

Soul Patts again defended its business model, saying it “does not consider its earnings to be the key indicator of the Company’s performance. As with any investment portfolio, the key drivers of success are growth in the capital value of the portfolio and growing dividends.”

The company said it “declares its dividends from the cash it receives from its portfolio (rather than accounting earnings). The regular cash received by WHSP from its investments for the full year FY20 is expected to be in line with the previous year and will support our ability to pay a growing interim and final dividend.

“Our biggest investment, TPG, is a consumer staple business and should see increased demand for its products and services as people are increasingly working remotely. We believe the value-focused products that will be offered by the merged TPG and Vodafone will become increasingly attractive.”

“Since January, Thermal coal prices and demand have been resilient, particularly in Australian dollar terms, which will assist New Hope to maintain profitability.”

“Brickworks has the benefit of exposure to TPG and New Hope through its investment in WHSP and also a sizeable industrial property portfolio with long leases which should benefit from lower bond rates.”

“The businesses in our pharmaceutical portfolio are also performing quite well. Apex and API have both seen an increase in demand for their products since the outbreak of COVID-19,” chairman Robert Milner said in the ASX release yesterday.

 

[Belli]

Saw an announcement by SOL it has sold 50m shares in New Hope which has reduced its substantial holding from 50.1% to 43.9%. My gut feeling is, and that is all it is, SOL is slowly exiting NH. BKI disposed some time ago its total holding in NH. I think MLT has also sold its holding but I'm not entirely certain that is the case.

 

[Miner]

Saw an announcement by SOL it has sold 50m shares in New Hope which has reduced its substantial holding from 50.1% to 43.9%. My gut feeling is, and that is all it is, SOL is slowly exiting NH. BKI disposed some time ago its total holding in NH. I think MLT has also sold its holding but I'm not entirely certain that is the case.

SOL probably realised enough is enough - New Hope is Hopeless

 

[Dona Ferentes]

Launch of up to A$250 million unsecured senior convertible notes due 2026

• WHSP intends to use the majority of the net proceeds from the Offering to repay approximately A$200 million of existing financial indebtedness which will lower WHSP's average cost of debt and increase WHSP’s debt maturity profile. The remaining proceeds will be applied to further strengthen WHSP’s liquidity position
• Following the Offering, WHSP will continue to have low gearing and diversified sources of funding
• A base issue size of A$225 million with a potential upsize option of up to an additional A$25 million, the Notes are convertible into fully paid ordinary shares in WHSP

 

[Dona Ferentes]

SOL is out with its Half Yearly

• Group profit after tax up 35% to $68.9 million (1H FY20: $51.0 million)
• Diversified portfolio showing resilience against market volatility
• Interim Dividend up 4% to 26 cents per share (1H FY20: 25cps)
o Grown at a compound annual growth rate of 8% for 20 years
• The only company in the All Ordinaries to have increased its dividends every year for the past 20 years
• Total shareholder return of 1,189% over 20 years
o Total Shareholder Returns have outperformed the market by 5.6% per annum for 20 years
• Number of shareholders increased 13% on previous corresponding period

Outlook

WHSP Managing Director, Todd Barlow, said: “The operating environment for most of our investments continues to improve from the disruptions of Covid-19. In particular, we are seeing a strong recovery in certain commodities such as thermal coal and copper (up 42% and 73% respectively in the last 12 months in USD terms).”

“Our investment in Round Oak Minerals (wholly owned) is performing very well in this environment. The development of Round Oak’s projects has been well timed with current increased production across all three operating mines at a time where commodity prices are strong and ore treatment charges have reduced.”

“While we are disappointed with the lack of approvals for the extension of New Acland in Queensland, New Hope’s Bengalla asset in NSW is performing strongly and at current spot thermal coal prices generates strong cashflows.”

“The integration of TPG and Vodafone appears to be proceeding well and, despite some reduction in earnings from lack of international travel impacting roaming and travel cards, we expect sustained growth in earnings over time.”

“For Brickworks, we are seeing very strong detached housing building approvals in Australia. The US market is still subdued from the impacts of Covid-19 but supportive government policy and low interest rates should be positive for the market. The demand for industrial property to service the growth in online shopping and logistics is also a key driver for increased earnings from Brickworks’ property division.”

“WHSP maintained good cash generation across the portfolio throughout the period impacted by Covid-19. Cash generation from the portfolio continues to be strong and supports our ambitions to maintain increasing dividends over time.”

“We continue to have liquidity available for new investments and have a strong pipeline of opportunities which we believe will deliver superior risk adjusted returns.”

 

[Belli]

SOL paid a dividend of Friday. I added to my holdings back in late April @ $17.15 last year when everybody decided the world has turned to custard. This FY to dividend has been $0.61. Still not a large holding of mine at 10,000 but it does the job.

A breakdown of its holdings as per its half-yearly report is attached.

 

[Dona Ferentes]

MILTON AND WASHINGTON H. SOUL PATTINSON AGREE TERMS OF A PROPOSED MERGER

• Milton Corporation Limited has entered into a Scheme Implementation Agreement with Washington H. Soul Pattinson and Company Ltd, under which it is proposed that WHSP will acquire 100% of the share capital in Milton it does not already own by way of a Scheme of Arrangement
• Milton Shareholders will receive WHSP scrip as consideration with Milton shares to be valued at a 10% premium to pre-tax net tangible assets adjusted for Milton final and special dividends. In addition, Milton shareholders will receive a fully franked special dividend (which Milton estimates will be up to 37cps) (Special Dividend), the fully franked final dividend (which Milton estimates will be approximately 8cps) (together the Proposed Dividends) and the fully franked FY21 final dividend from WHSP (which WHSP indicatively estimates to be 36cps, of which, based on the exchange ratio, and at current prices, Milton shareholders are estimated to be eligible for 7cps)
• Based on current prices, the proposal implies a value of $6.00 per Milton share, equivalent to an enterprise value of $3.99 billion based on a $4.05 billion equity value and $59.7 million net cash balance
• Implied value of $6.00 per Milton share represents a significant premium of 20.0% to Milton’s last closing price of $5.00 per share, a 9.9% premium to Milton’s pre-tax NTA of $5.46 per share, a 28.5% premium to Milton’s post-tax NTA of $4.67 per share and a 20.2% premium to the one month volume weighted average price of $4.99 per Milton share.

..... but will the BKW / SOL arrangement get some attention?

 

[mullokintyre]

MILTON AND WASHINGTON H. SOUL PATTINSON AGREE TERMS OF A PROPOSED MERGER

• Milton Corporation Limited has entered into a Scheme Implementation Agreement with Washington H. Soul Pattinson and Company Ltd, under which it is proposed that WHSP will acquire 100% of the share capital in Milton it does not already own by way of a Scheme of Arrangement
• Milton Shareholders will receive WHSP scrip as consideration with Milton shares to be valued at a 10% premium to pre-tax net tangible assets adjusted for Milton final and special dividends. In addition, Milton shareholders will receive a fully franked special dividend (which Milton estimates will be up to 37cps) (Special Dividend), the fully franked final dividend (which Milton estimates will be approximately 8cps) (together the Proposed Dividends) and the fully franked FY21 final dividend from WHSP (which WHSP indicatively estimates to be 36cps, of which, based on the exchange ratio, and at current prices, Milton shareholders are estimated to be eligible for 7cps)
• Based on current prices, the proposal implies a value of $6.00 per Milton share, equivalent to an enterprise value of $3.99 billion based on a $4.05 billion equity value and $59.7 million net cash balance
• Implied value of $6.00 per Milton share represents a significant premium of 20.0% to Milton’s last closing price of $5.00 per share, a 9.9% premium to Milton’s pre-tax NTA of $5.46 per share, a 28.5% premium to Milton’s post-tax NTA of $4.67 per share and a 20.2% premium to the one month volume weighted average price of $4.99 per Milton share.

..... but will the BKW / SOL arrangement get some attention?

I guess it will have to.
The incestuous tie up between the two means that nothing happens unless both parties agree.
So one would assume that the the boards of BKW and SOL will have thrashed this out (in secret of course), and some other arrangement may have been agreed to.
The Problem for BKW is that there will be a severe dilution of its stake on SOL, but not he reverse.
Perhaps BKW will eventually be absorbed into SOL.
Time will tell.
Mick

 

[Belli]

SOL has increased its holding in BKW as at today.

 

[Dona Ferentes]

▪ WHSP has resolved to pay an FY21 Final Dividend of 36cps, fully franked
▪ Total dividends for FY21 of 62cps (up 3.3%)
▪ 21st consecutive increase in full year dividends

There is a presentation addressing the inclusion of Milton assets into SOL

Investing strategy
WHSPs enhanced liquidity position following the merger will allow us to capitalise on investment opportunities arising in our target asset classes and thematics

1. Milton merger providing > $2b in additional liquidity
WHSP has significant liquidity available for future investment. Additional debt capacity and low cost of debt

2. There is a high level of deal flow in alternative asset classes
Private equity, Structured yield, Emerging companies, Global equities, Real assets & Property

3. WHSP is focusing on key thematics
Health and Ageing, Energy Transition, Agriculture, Financial Services, Education

4. Building around platforms for growth


▪ Addition of Milton assets will significantly increase Large cap portfolio (+ $3.5 billion).
▪ Opportunity to rebalance the Milton portfolio in a disciplined manner over time as suitable investments arise

.... & I suspect there will be selling down/ reweighting towards assets in pts 2 and 3.

 

[Belli]

One of my kids holds MLT and asked what it meant. Basically I said shareholders voted to give up a share close to NTA for one which has this NTA

at a price greater than the $31 used in the exchange ratio calculation and a one-off sweetener of $0.37 special dividend.

Was a good deal for SOL using overpriced script to get assets of $1 for the price of $0.50. At least new SOL holders will receive SOL's dividend in December.

ARG held a swag of MLT so some will be flung my way I guess.

 

[Muschu]

I held a bundle of MLT before the merger. Picked up their dividend of course. Then, a tad too late, I sold almost half of the SOL shares that I acquired. The SOL share price continues to wend it way down.
Any thoughts, fundamental or technical, on where this might end?

 

[Dona Ferentes]

Washington H Soul Pattinson’s copper mining .. candidate Round Oak Metals will hit the streets for cornerstone talks with high hopes on Monday, trying to make the most of wide open IPO market and the surge in base metals prices.

It’s understood that deal research from Round Oak’s bankers Canaccord Genuity, Morgans and Bell Potter was being sent out on Thursday and Friday, ahead of the cornerstone roadshow.

The talks will involve both domestic and international institutions and the business is expected to attract a valuation in the $300 million to $400 million range. ... the business is likely to raise around $200 million through the float, with a $90 million primary raise, and about 50 per cent composed of a sell down.

 

[Dona Ferentes]

WHSP thanks shareholders who registered their interest in participating in the proposed Round Oak Initial Public Offering (IPO) process.

WHSP has decided not to proceed with the IPO process at this time as a result of current market conditions for IPOs and some encouraging exploration results at Round Oak’s Jaguar operations in Western Australia that have the potential to materially extend mine life.

Round Oak continues to perform very well with strong operations and favourable copper and zinc prices and WHSP believes that extending the life of mine at Jaguar and progressing the Stockman project in Victoria will add material value for WHSP shareholders.

 

[Belli]

SOL to put some Christmas spending money into my account today. Thanks.

 

[Dona Ferentes]

A one hour podcast, interviewing Rob Millner of SOL. Matthew Kidman does a good job.

Rob Millner's simple rule for investing success

Episode three of Success and More Interesting Stuff features Rob Millner, the patriarch of Washington H Soul Pattinson. Soul Patts is the closest investment vehicle that Australia has to Warren Buffett’s Berkshire Hathaway. And, like Berkshire Hathaway, Soul Patts has been an outstanding...

www.livewiremarkets.com

1. Always focus on cash. Always have cash handy
2. COP26 should have been called COP400 for the 400 private jets that turned up.

 

[IrishDigger]

I'm wondering how BKI fits into the overall future plan; will it go the way of MLT?

 

[Dona Ferentes]

I'm wondering how BKI fits into the overall future plan; will it go the way of MLT?

Not much of an indication in the Interview transcript (link above). But thereagain, they play their cards close :

Matthew Kidman
And with your other investments, you've got BKI, you've got Pengana, and there's five or six of them, do they come under the same scrutiny as what you're saying there? Milton was a lot bigger.
Rob Millner : Yeah. Yeah.
Matthew Kidman : Or do you have ambitions?
Rob Millner
No. The Milton portfolio now will be run internally by Brendan O'Dea and his team, who are the Milton team. BKI is a separate investment that came out of when Brickworks bought out Bristile. We needed to raise some equity, and again, I mentioned before the dividend income out of Brickworks. So we raised a few more dollars and floated that off into the market at $180 million. It's now worth about $1.3 billion.

Matthew Kidman
It's been a tremendous success.

Rob Millner
Yeah. So, that's a smaller investment that we've got. I don't know whether they're going forward with things like Pengana and Iron Bark and those things, whether they'll all come into one. But we've just got to see how that all plays out.

also this is a comment further on:

M.K. So, there's quite a few people depending on you guys for those dividends. That's what they're there for.

Rob Millner
As you know, you've been around the investment company, the majority of the older people have their money in something they can understand like an LIC, and they're very dependent on that income.
And unfortunately, this time last year, they all got smashed because some of the banks didn't pay a dividend, and BHP. I know BKI, for example, is going to make more in this half they made the whole year, last year because we've had these increases in dividends.

 

[Dona Ferentes]

I held a bundle of MLT before the merger. Picked up their dividend of course. ...

.... Any thoughts, fundamental or technical, on where this might end?

Apart from the point that it won't 'end' but is an ongoing story (check the interview transcript for succession talk), I must say it has been a bit of a ride for what are essentially the same assets, over the last year or so.

A year ago, I had $100K in Milton and $80K in SOL; then MLT ran hard and by the time of the merger at one stage it was $270K. Now $190K in new enlarged SOL and of course some juicy dividend flow along the way. Should I have sold; perhaps? Has it gone too far down? Possibly.

The old MLT, as a LIC, was easy to value on NTA (or NAV) whereas SOL has that X-factor of gearing, of unlisted assets and less visible valuations. After going through a Review of Group Entities, on P27 of the Annual Report it mentions this :

The Consolidated Entity presents certain Alternative Performance Measures (APMs), including regular and non-regular profit after tax, Net cash flows from investments and net asset value. These APMs are used by management to assess the performance of the business and may therefore be useful to investors. They are not a substitute for the Australian Accounting Standards measures and should be considered supplementary to those measures.

And , mention of how SOL now sees Milton is made in the interview :

Matthew Kidman
But now you've decided to merge with Milton, and no longer will it be an LIC — it comes into the Soul company. Why would you do that?

Because you've already got your own investment portfolios within Souls, and you've got a number of positions in different various fund managers, and you've built up a terrific business, but now you bid this, and it's a big one. It's a big deal.

Rob Millner
Again, they've got good people down there. And it gives us the option of not having $3.5 billion or $4 billion — it got to $4 billion at one stage — all in the Australian market.

It's going to give us an option, and we're not going to be as dependent as Milton was. And an LIC, as you well know, what I call the older ones have always been very dependent on paying out somewhere between 90 and 100% of their profits out to shareholders. Whereas we'll bring that into Souls.

We can put some money into overseas equities, probably put some money into private equity, and just diverse a little bit, but with the investments that we've got in Souls, Milton's shareholders are going to continue and probably get an extra dividend than what they would've got normally because they've got the diversification of the portfolio of Souls behind them as well.

Matthew Kidman
So, it works for them just like it has for Brickworks over the years. So, you've had your own investment portfolios that you've got in Souls, large caps, small caps. Does Milton basically come in under those? Is that how it's going to look?

Rob Millner
It'll all be one. Obviously, it'll be different cost bases because obviously the Milton shares have all been set at a different cost base, but they'll be just run by the same people.

[.... and, trying to tease out some indicator of the future?]
........ Matthew Kidman
Or do you have ambitions?

Rob Millner
No. The Milton portfolio now will be run internally by Brendan O'Dea and his team, who are the Milton team.