A conglomerate is a large company that is made up of a number of different, seemingly unrelated businesses. Well known global examples include Warren Buffett’s Berkshire Hathaway and General Electric Company.
Conglomerates go in and out of favour as markets react to news of acquisitions and divestments.
Investing in conglomerates can at times create buying opportunities as markets often struggle to determine their intrinsic value due to their complicated structures.
Here are three conglomerates listed on the ASX that are worth looking into as potential investments:
- Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) is one of the oldest companies listed on the ASX and has over 20 years of consistent dividend growth. It has investments in multiple businesses including listed companies like TPG Telecom Ltd (ASX: TPM) (25% ownership) , New Hope Corporation Limited (ASX: NHC) (59% ownership), Brickworks Limited (ASX: BKW) (44%) and Australian Pharmaceutical Industries Ltd (ASX: API) (19% ownership). Soul Pattinson has a long-term focus on growing shareholder value based on a conservative management philosophy.
- Seven Group Holdings Ltd (ASX: SVW) owns investments in industrial services and media. In industrial services, it owns WesTrac Group which is the sole authorised Caterpillar dealer in Western Australia, New South Wales and the Australian Capital Territory in Australia. Seven Group Holdings also owns AllightSykes, a supplier of lighting towers, generators and pumps, and has a 45 per cent shareholding in Coates Hire, Australia’s largest equipment hire business. In media, Seven Group Holdings has a 41% shareholding in Seven West Media, Australia’s largest multi-platform media company. These investments in leading companies expose Seven Group to booms in key Australian industries such as mining and construction.
- Steamships Trading Company Limited (ASX: SST) has investments in shipping, transport, property, manufacturing and hotels in Papua New Guinea. It currently trades at a 10% return on equity and a price to earnings ratio of 17.
Investing in conglomerates can be an easy way of getting exposure to a broad range of assets but their complex structure can make valuing them difficult. Their size can at times slow down their growth, but under the right leadership, they tend to deliver consistently over the long term.
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Motley Fool contributor Kevin Gandiya has no position on any of the shares mentioned.
You can follow him Twitter @KevinGandiya
The Motley Fool Australia owns shares of TPG Telecom Limited and Washington H. Soul Pattinson and Company Limited. 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.
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