Just as its associate, Brickworks (ASX:BKW), still lifted its final and full-year dividends for 2023-24 despite a significant loss for the year to July, its biggest shareholder, Washington H. Soul Pattinson (ASX:SOL), did the same, even though it reported weaker inflows from two major investments.
Soul Patts, as it is known colloquially, is primarily an investment house with major stakes in Brickworks, New Hope, TPG, a group of smaller companies, a huge investment portfolio, and private equity and credit dealings.
Soul Patts informed the ASX on Thursday that its group statutory net after-tax profit fell 28% year on year to $498.8 million for the year to July.
The cause of this decline was weaker returns from Brickworks and the coal group New Hope, which had two fabulously profitable years from 2022 to the start of this year, thanks to Russia’s invasion of Ukraine and the way it drove energy prices—especially thermal coal—higher.
Now, New Hope will return to the hard slog of producing and exporting coal at significantly lower prices than it became accustomed to during the boom years.
However, the company reported that net cash flow from investments increased by 10.3% to $468 million, driven by increased cash generation from its private equity, emerging companies, and credit portfolios.
The net result is more than enough for Soul Patts to pay a final dividend of 55 cents per share, bringing the total FY24 dividend to 95 cents, an increase of 9.2% from the previous year’s 87 cents per share.
Soul Patts' portfolio grew by 8.7% over the year to a new high of $11.8 billion.
Besides Brickworks and New Hope, other investments include TPG Telecom and a large holding of major ASX 200 companies acquired in the 2021 takeover of Milton Corp, or built up through its own dealing activities.
A final point: Brickworks must be the only company listed on the ASX that doesn’t think profits matter all that much.
Its annual report, issued on Thursday, contained this comment:
"As an investment house, Soul Patts does not consider profit to be an accurate reflection of investment performance. The key drivers of success are growth in the capital value of the portfolio (Net Asset Value) and a growing yield as measured by Net Cash Flow From Investments.”
And how did they perform? The growth in net asset value was 8.7%, and net cash flow from investments was up 10.3%.
Over the past three years, including the reinvestment of dividends, NAV has increased by 13.5% per annum, outperforming the All Ordinaries Accumulation Index by 6.4% per annum. This growth has added $2 billion to shareholder wealth over and above market growth. Over the same three-year period, Net Cash Flow From Investments grew at 20.0% per annum, enabling Soul Patts to increase its dividends at a compound annual growth rate (CAGR) of 15.3%, compared to the All Ordinaries Index dividend growth of 0.9% per annum.
However, this performance was also significantly aided by the coal price boom for New Hope, the Milton Corp takeover, the Vodafone-TPG merger, and the sale of 19% of Australian Pharmaceutical Industries to Wesfarmers in March 2022.
