Investors are likely to have been caught off-guard yesterday with Seven Group Holdings Ltd (ASX: SVW) reporting a profit which beat the company’s own guidance.

Here are the key facts investors need to know:

  • Guidance was for a decline in underlying earnings before interest and tax (EBIT) of 10%
  • Actual results show underlying EBIT declined by only 4% to $303 million
  • Underlying net profit after tax fell 10% to $184 million
  • Underlying earnings per share only fell 5% to 56 cents per share (cps) thanks to an ongoing share buyback program
  • A final, fully franked dividend of 20 cps has been declared. For the full year shareholders will receive a total of 40 cps
  • Closing net debt was relatively flat year-on-year at $1.37 billion
  • Key drivers of the results were a pickup in business activity for WesTrac Australia which operates the CAT dealerships thanks to an uplift in infrastructure spending.

Conglomerate opportunity

Seven Group could be described as a conglomerate, styled in a similar fashion to peers Wesfarmers Ltd (ASX: WES) and Washington H. Soul Pattinson and Co. Ltd (ASX: SOL). Both have utilised a conglomerate structure to great success.

Amongst the businesses and assets owned by Seven are:

  • CAT dealerships in Australia and China
  • Industrial equipment businesses
  • Direct investment into oil and gas assets
  • A 41% shareholding in Seven West Media Ltd (ASX: SWM)
  • A 23% shareholding in Beach Energy Ltd (ASX: BPT)
  • A large property portfolio
  • A portfolio of listed equity investments

Outlook

With management providing guidance that it expects financial year (FY) 2017 underlying EBIT to be in line with FY 2016, there are signs that the bottom of the earnings cycle may have been reached for Seven.

While the share price has already rallied strongly – perhaps in anticipation of better times ahead – from a 52-week low level of $4 the stock now trades at $7, even at today’s price level a price-to-earnings ratio of 12.5x and a yield of 5.7% arguably represents compelling value.

If you are interested in quality dividend shares, then I would recommend this top dividend share instead. A strong yield and potential share price gains make this a great investment idea in my opinion.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.