Just last week I decided to invest some money into Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) for the long-term.
Washington H. Soul Pattinson, or Soul Patts for short, is an investment conglomerate that has been operating for over 100 years. It has been listed on the ASX since 1903.
According to Soul Patts, more than 40 employees have worked for the company for over 50 years. Five generations of the Pattinson family have served the company, as have three generations of the Dixson, Spence, Rowe and Letters families. I think the entire business is setup for long-term success.
Here are the reasons why I decided to buy some shares:
Increasingly diverse portfolio
Soul Patts is Australia's version of Berkshire Hathaway. It takes investment stakes in listed businesses and it also owns unlisted businesses outright.
Its investment portfolio is diverse, it includes telco TPG Telecom Ltd (ASX: TPM), commodity business New Hope Corporation Limited (ASX: NHC), diversified building products business Brickworks Limited (ASX: BKW), pharmacy business Australian Pharmaceutical Industries Ltd (ASX: API), nutritional business Clover Corporation Limited (ASX: CLV) and swim schools, as well as many more.
Recently the company announced it had made a $100 million investment into an agriculture portfolio including citrus, macadamias and cotton. It is also expanding into luxury retirement living.
Diversification helps Soul Patts have a safer and better portfolio as time goes on.
Valuation
In recent times Soul Patts' share price is quite closely tracking its pre-tax asset value. In other words, its share price is priced at what all of its underlying assets are valued at.
However, many of Soul Patts' unlisted assets are conservatively valued – a lot of them are valued at cost rather than today's value. I think Brickworks is materially undervalued because if you take the Soul Patts shares and property trust at book value, the building products segments come free. Coal isn't a growth industry, but the New Hope share price has fallen heavily during 2019 and could just as easily climb again. TPG could get a boost early next year if it wins the court case to merge with Vodafone Australia.
As Warren Buffett said, it's better to pay a fair price for a wonderful business than a wonderful price for a fair business. I think the current Soul Patts share price undervalues the short-term and long-term opportunities within its portfolio.
Dividend record
In this era of low interest rates I think it's prudent to find businesses which are paying out sustainable cashflow as dividends, and that we're not paying too much for that cashflow.
Soul Patts only paid out 82% of FY19's regular operating cashflows as a dividend, leaving plenty for re-investment back into more opportunities.
It hasn't missed paying a dividend since it listed and it has grown its dividend every year since 2000. It has a great record.
Foolish takeaway
Soul Patts is by far my favourite ASX investment today and I'm happy to keep buying more shares at this level. I hope to own this share for the rest of my life, it seems set up for the ultra-long-term and can keep achieving good compound growth.
