Seven Group Holdings Ltd (ASX: SVW) has seen its share price jump more than 6% in early trading to $4.91, despite net profit crashing 90% to just $6.5 million for the first half of the 2016 financial year (FY16).
Seven Group is a diversified company, owning 41% of media group Seven West Media Ltd (ASX: SWM), Caterpillar licenced dealer in Western Australia, NSW and the ACT, as well as five provinces of China, 46% of Coates Hire and 100% of AllightSykes – a distributor of lighting, pumps and generators.
Seven also has a 20% stake in Beach Energy Ltd (ASX: BPT) and Drillsearch Energy Limited (ASX: DLS), with the two oil and gas companies merging. The company also has a substantial listed investment and property portfolio.
Revenues were down slightly for the conglomerate, falling 2% to $1,368.6 million, but one off items took their toll, with the group forced to write down the value of its holding in Seven West Media by $182.2 million. Seven West Media's share price had tumbled 22% in the six months to end of December 2015.
That write down was partially offset by gains from the company's property portfolio of $37.2 million.
Excluding one-offs, Seven reported a net profit of $111.6 million, down slightly from the underlying net profit of $118.7 million reported for the first half of the 2015 financial year. However, one-offs are generally expected to be just that – one-off, and this is not the first time Seven has been forced into write downs. Last year it was a $195.5 million writedown on its holding in Seven West Media – suggesting that these one-offs aren't exactly one-offs.
The company has declared an interim fully franked dividend of 20 cents, unchanged from last year and has also announced a continuation of the share buy back scheme. Seven intends to buy back up to 16.6 million shares on market from March 2016.
So what?
Revenues are down, underlying earnings and profits are down and the outlook isn't all that great either. The Westrac businesses are being negatively impacted by falling mining investment, as is Coates and AllightSykes. Seven West faces structural declines in a number of its core businesses, and the crashing oil price has hammered the group's energy investments. That's not to mention the company's investment portfolio, which underperformed the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), losing 4.3% in the six months versus a 0.3% gain for the index.
Now what?
Seven expected underlying earnings before interest and tax (EBIT) for the full 2016 financial year to be down 10% compared to the prior year, not exactly a great endorsement of the company's diverisification.
Foolish takeaway
Retail investors might want to avoid Seven Group, consider the wealth of better investment opportunities out there.
