The Motley Fool

Is Washington H. Soul Pattinson & Co. Ltd (ASX:SOL) overvalued?

Soul Patts is not the most exciting company out there. It has a finger in many pies, with interests in telecommunications, mining, financial services, building materials, as well as a portfolio of real estate and equities.

In short, it’s not the type of company you expect massive growth from. So why is it up almost 60% in the last year alone?

Well, there’s a couple of things going on here. The value of Soul Patts investments have been doing really well.

Business Performance

The company’s largest holding is in TPG Telecom Ltd (ASX: TPM), which is up 80% in the last year – most of that in the last month alone after it announced plans to merge with Vodafone.

Soul Patts also owns a large chunk of building materials producer Brickworks Limited (ASX: BKW), which is up around 30% in the last 12 months, on the back of the east coast construction boom.

Another of its largest holdings is New Hope Corporation Limited (ASX: NHC), which is up an incredible 100% since this time last year, on the back of surging profits for the coal miner.

Adding those things up, it’s no wonder shares in Soul Patts have been rocketing along in recent times.

NTA Value

A common metric used to value an investment company like Soul Patts is the company’s NTA (net tangible asset value).

At the end of January this year, the company’s NTA was $21.73 per share. If we fast forward today, the share price is a bit over $25.

Given the performance of its largest holdings, It doesn’t take a mathematician to guess the value of Soul Patt’s portfolio is very likely somewhere in the region of $24-$26.

What happens from here with each of those businesses is up for debate. But what this shows is, Soul Patts is close to fairly valued compared to its NTA. The company has historically traded at a decent discount to NTA, so this is perhaps unusual, but not unwarranted, and this re-rating also partly explains why shares have shot up so much.

You could even argue the company deserves to trade at a premium, given the extremely long-term history of strong business performance. The dividend history is nothing short of wonderful. In fact, the company has just announced another increase in the dividend, making it 18 years in a row of dividend growth. It can easily be argued that Soul Patts is a miniature Australian version of Berkshire Hathaway.

Foolish takeaway

While it no longer looks cheap, I’m certainly not selling my shares of Soul Patts. If you’d sold at some point during the last 40 years, it’s likely you’d be regretting it today. My advice is, just sit back and let the company do its thing, while you keep an eye on the ever-increasing dividend.

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Motley Fool contributor Dave Gow owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended TPG Telecom Limited and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Brickworks. 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 Scott Phillips.

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