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Soul Patts share price on watch after delivering profit warning

The Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) share price will be on watch today after the ASX investment house released an earnings guidance update after hours yesterday.

Profit impacted by reduced earnings from core investments

In the release, Soul Patts informed the market that its half-year net profit after tax (NPAT) for the period ending 31 January 2020 is likely to be in the range of $45 million to $55 million. Meanwhile, its regular NPAT which excludes the impact of non-regular items is likely to be in the range of $120 million to $130 million.

Soul Patts pointed out that its regular profit has been impacted during the current year by reduced earnings from all of its major investments.

With regards to its investment in TPG Telecom Ltd (ASX: TPM), Soul Patts noted that TPG has already released its first-half results. The telco’s underlying profit for the half-year was down 29.8%, while its business as usual earnings before interest, tax, depreciation and amortisation (EBITDA) was down by 4.9%.

Soul Patts also has a stake in New Hope Corporation Limited (ASX: NHC) which has not released its half-year results at this stage. However, the coal miner did reveal that its first-quarter results were down 51% due to coal prices falling 40% throughout the 2019 calendar year.

Brickworks Limited (ASX: BKW), which Soul Patts has a major investment in, has not released its half-year results yet either. However, Soul Patts noted that Brickworks’ financial result will be impacted by lower expected profit from its shareholding in Soul Patts, which is a major asset for Brickworks.

In addition, Soul Patts anticipates poor performance of its Round Oak Minerals investment due to falling zinc and copper prices.

Focus on increasing capital value and growing dividends

Soul Patts outlined that it will now be focused on increasing the capital value of its company. The gross value of Soul Patts’ portfolio at 31 January 2020 was fairly much in line with its value at the end of FY19, six months prior.

Soul Patts further noted that its share price was trading at a 5.8% discount to the gross value of the assets in its portfolio at the end of January of this year.

The other focus of Soul Patts moving forward will be to steadily grow its dividend. Soul Patts added that the regular cash it received from its portfolio of investments for the full year financial year in 2020 is expected to be in line with the previous year. This, Soul added, will support its ability to pay a growing interim and final dividend.

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Motley Fool contributor Phil Harpur has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended 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.