Kerry Stokes’ Seven Group Holdings rode the rebound in resources and the surge in infrastructure spending very nicely in the year to the end of June – and so did the shares, yesterday, continuing this year’s long surge higher.
Stokes owns around 65% of Seven Group which holds interests in industrial services (such as plant and equipment sales and hire), media (Seven West Media), energy (Beach) and stockmarket investments.
Seven Group told the ASX that it had lifted its underlying net profit by a hefty 72% cent to $321.9 million, easily beating market forecasts.
The shares were up more than 10% in early trading and were around 8% higher at 11am at $21.96.
Investors also liked the forecast for a 25% rise in earnings this financial year.
But despite the very strong rise in earnings, directors have been stingy and the dividend has only risen one cent to 41 cents for the year.
CEO Ryan Stokes said underlying earnings before interest and tax exceeded the company’s recently upgraded expectations.
“The year has been transformative for SGH and we are very pleased with the results delivered to date,” he said in yesterday’s statement.
“We completed a number of significant strategic transactions, positioning the group for continued growth and delivering exceptional shareholder value" he said.
Directors attributed the result to strength in the mining industry driving demand for its products, continued investment in east coast infrastructure and the performance of oil and gas exploration company Beach Energy – 25% owned by Seven Group.
That stake was built in the year to June while the company took control of Coates Hire after buying out a private equity co-owner.
Coates Hire, the largest equipment hire business in the country and it has benefited from the upsurge in government infrastructure spending in NSW and Victoria especially and the rebound in mining investment.
WesTrac, the sole authorised dealer of Caterpillar equipment in NSW, Western Australia and the ACT has benefited from the solid recovery in mining, especially coal and iron ore, as well as several new mining openings.
The company reported underlying earnings before interest, tax, depreciation and amortisation of $642.7 million for fiscal 2018, which beat analyst forecasts and was up 67% on 2016-17
The company declared a fully franked, final dividend of 21 cents per share, making a total for the year of 42 cents a share, up marginally from the 41 cents paid for 20916-17.
Seven Group said it was also launching offer for holders of its TELYS4 securities to convert at a premium their TELYS4 to ordinary shares, which if approved, "will unify SGH’s capital structure increasing free float."
Directors said the conversion proposal gives the the TELYS4 holders the opportunity to receive 4.6064 ordinary shares for each TELYS4.
"If the vote is passed, it will also give them the option of selling up to 50 per cent of the TELYS4 for cash, at a price of at least $88.00 per TELYS4.
"This conversion ratio represents a 15 per cent premium to the current trading price and the proposal enables them to receive cash for up to 50 per cent of their TELYS4 at a minimum price which is an 8.5 per cent premium to the current trading price of the TELYS4.”
“(T)he conversion will be EPS-accretive for ordinary shareholders and increase the free float by up to 5 per cent, increasing SGH’s index weighting on critical ASX and potentially MSCI indices,” Seven Group directors said in yesterday’s release.
