Soul Pattinson: Australia’s Berkshire Hathaway?


Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) is a diversified investment company, similar to Warren Buffett’s Berkshire Hathaway (NYSE: BRK.A, BRK.B) with investments in whole companies as well as interests in several companies as you can see from the table below. Like Berkshire, the company also has its own share portfolio, with a market value of $425m as at the end of January 2012.

One of the major differences for investors is that Soul Pattinson pays dividends, whereas Berkshire does not.

Despite its $3.14bn market cap, Soul Pattinson is not in the S&P/ASX 300 Index (ASX: XKO) (Index: ^AXKO) which would put it in the top 50 listed stocks by market capital. It’s even bigger than Qantas Limited (ASX: QAN) – though that’s easier than it used to be!

Company History

Soul Pattinson is Australia’s second oldest listed company. Beginning as a chemist shop in Pitt Street, Sydney in 1872, the company listed on the Australian Securities Exchange in 1902. Soul Patts, as it’s colloquially known, has paid a dividend every year since then, including throughout the depression of the 1930s. Today the company is a diversified investor in basic industries such as building products, property and coal, as well as equities, telecommunications, rural services, financial services and pharmaceuticals.

Investments

Soul Pattinson’s wholly owned companies include Pitt Capital Partners Limited, a corporate advisory firm, Souls Private Equity as well as stakes in non-listed companies including CopperChem Limited (in which Soul Patts holds 93.4% of the shares), which produces copper sulphate and copper concentrate. The company’s holdings in listed investments include the following:

Company % owned by Soul Patts Share price Market value of Soul’s share Industry
New Hope Corporation Ltd   (ASX: NHC) 59.7% $4.06 $2,008m Coal miner
Brickworks Limited (ASX: BKW) 44.5% $10.40 $682m* Building products and property
BKI Investment Co Ltd (ASX: BKI) 13.6% $1.15 $67m Investment company
TPG Telecom Ltd (ASX: TPM) 26.9% $1.76 $369m Telecommunications
Ruralco Holdings Limited (ASX: RHL) 23.5% $3.02 $39m Rural products such as grain, water, fertilizer and stockfeed
Australian Pharmaceutical Industries Ltd (ASX: API) 24.6% $0.36 $43m Pharmacies and Priceline
Apex Healthcare Berhad (Malaysia) (7090.KL) 30.3% $0.89** $25m Pharmaceutical and healthcare products
Clover Corporation Limited (ASX: CLV) 28.6% $0.37 $17m Food and nutritional products
Total $3,250m

Source: Annual reports, Google Finance, Yahoo Finance
* Excludes 42% shareholding in Soul Pattinson
** Converted from Malaysian Ringgit to Australian dollars at an exchange rate of 3.1492

The company’s share portfolio includes investments in Milton Corporation Limited (ASX: MLT), BHP Billiton Limited (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), Telstra Limited (ASX: TLS), Campbell Brothers Limited (ASX: CPB) and Perpetual Limited (ASX: PPT).

Market agitation to separate Brickworks from Soul

Fund manager Perpetual and some other institutional investors have been agitating to break the crossholding between Soul Pattinson and Brickworks. Brickworks owns 42% of Soul Pattinson, while Soul Pattinson holds 44.5% of Brickworks. Perpetual has argued that unwinding the arrangement could realise up to $1.5bn in underlying value in both stocks. Robert Millner, chair of Brickworks has defended the 40-year-old strategic alliance, saying that the current arrangement helps Brickworks to offset the cyclical earnings from its building products and property businesses.

The proposal to unwind the crossholding was recently rejected by an independent review panel. Unwinding the arrangement would see Brickworks having to pay substantial capital gains tax, as well as shareholders potentially facing additional tax.so it’s likely that the crossholding won’t be removed any time soon.

Why Invest?

There’s a lot to like about an investment in Soul Pattinson. A shareholding offers instant diversity into many industries.

The company is shareholder friendly; over the past 15 years, Soul Pattinson has returned an average 11.5% per annum to its shareholders, including dividends and capital gains. The company has also paid special dividends in eight of the last 10 years, and unlike many other companies, hasn’t asked its shareholders to contribute more capital for at least the last 13 years.

Soul Pattinson has no debt, and cash reserves of $229m — not including $1.4bn of term deposits sitting on New Hope’s balance sheet.

Management have shareholdings not just in the company, but in the associated companies as well, so shareholders should feel comfortable that directors will act in their best interests. The Millner family hold about 8% of the equity in both Soul Pattinson and Brickworks.

The Foolish bottom line

Trading at a discount to both its book value ($15.72) and the current market value of its listed investments ($13.61), and with a long and profitable history, Soul Pattinson is one for the watchlist.If you’re in the market for some less risky, high yielding ASX shares, look no further than Secure Your Future with 3 Rock-Solid Dividend Stocks. In this free report, we’ve put together our best ideas for investors who are looking for solid companies with high dividends and good growth potential. Click here now to find out the names of our three favourite income ideas. But hurry – the report is free for only a limited time.

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Motley Fool contributor Mike King owns shares in BHP. The Motley Fool‘s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Editor’s note: The table in the article originally listed Clover’s full market value, rather than Soul Pattinson’s share. Thank you to Mark, our Foolish reader who picked up the error. It has been corrected.

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