The Seven Group Holdings Ltd (ASX: SVW) share price jumped more than 2.5% on the ASX this morning after its majority-owned subsidiary, Beach Energy Ltd (ASX: BPT), announced a Memorandum of Understanding with Santos Ltd (ASX: STO) and Key Petroleum Ltd (ASX: KEY) for a new gas supply agreement.
What was the announcement?
Key Petroleum announced a non-binding Memorandum of Understanding (MOU) had been executed between Key, Santos and Beach Energy (and subsidiaries) to cover proposed terms for connection and transport into the Cooper Basin gas gathering network and gas processing at the Santos-operated Moomba Gas Processing Facility.
Santos and Beach Energy are joint venture (JV) partners which own gas processing facilities at Moomba in South Australia, where Santos acts as the Operator of the plant. The latest announcement (on confidential terms) will form the basis of a future binding agreement for supply to the east coast Australian gas market.
What’s that got to do with the Seven share price?
Seven Group, through its wholly-owned subsidiary, Network Investment Holdings Pty Limited, holds a ~70% majority stake in Beach Energy. Seven recently increased its stake even further, purchasing a further 68 million shares in mid-November to take its total outstanding position to over 650 million shares.
Seven has diversified away from its media roots in recent years into core areas such as mining and energy, and if it continues its recent run of form it could go even higher.
Is the Seven Group share price a buy?
The Seven Group share price rose more than 22% in February alone, buoyed by a solid earnings season and Beach’s continued share price resurgence, with the Aussie energy company up more than 60% year-to-date.
Despite Seven’s ongoing diversification, I think they might be subject to significant headwinds as growth continues to slow and any slump in Beach’s performance and profitability could hit shareholders of Seven particularly hard.
The stock currently has a dividend yield of 2.3%, which certainly isn’t the worst in the sector, but its P/E multiple of over 20 would make me wary of investing at this point in the cycle.
For those who are similarly bearish on Seven, I’d be checking out these top growth shares that have been tipped as market beaters.
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Motley Fool contributor Lachlan Hall has no position in any of the 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 Scott Phillips.
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