Seven Group (ASX:SVW) share price drops on FY21 earnings

The company's shares are sliding despite seemingly positive results from Seven Group.

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The Seven Group Holdings Ltd (ASX: SVW) share price is in the red this morning following the release of the company's results for financial year 2021 (FY21).

Right now, the Seven Group share price is $21.93, 4.15% lower than its previous close.

Additionally, Seven Group announced today that Kerry Stokes will be stepping down as chair after the company's annual general meeting in November. Terry Davis will be taking the top spot on Seven Group's board following Stokes' retirement.

Seven Group share price slumps despite $4.8 billion revenue

Here's how the diversified operating and investment group performed over FY21:

  • $4.8 billion on trading revenue – 6.1% more than that of FY20
  • Underlying earnings before interest and tax (EBIT) of $792.1 million, up 7.3%
  • Operating cash flow of $622.4 million, up 15.6%
  • Fully franked final dividend of 23 cents per share (10% more than that of FY20). That brings the company's full year dividends to 46 cents

The company's WesTrac segment, one of the largest Caterpillar equipment dealers, was a crown jewel over FY21. The segment brought in $400.2 million of underlying EBIT – 7.9% more than in FY20.

According to Seven Group, WesTrac was boosted by ongoing strength in mining production and construction.

Seven Group's equipment hire and solutions provider, Coates, had EBIT of $211.6 million, up 3.8% on the prior corresponding period.

Coates' activity levels were impacted in the first half due to delayed projects, cancellation of events, and lockdowns.

Construction materials company Boral Limited (ASX: BLD) brought in $38 million of EBIT after Seven Group's dramatic takeover. Those interested in Boral's FY21 results can find them here.

The company's energy segment's EBIT was $102.3 million, 19% less than in FY20.

Seven Group's energy segment is made up of SGH Energy and the company's 30% holding in Beach Energy Ltd (ASX: BPT). Beach Energy's production and profits both fell in FY21.

Finally, Seven Group's media segment, made up of its 40% holding of Seven West Media Ltd (ASX: SWM), brought in $57 million of EBIT, 22% more than in FY20.

Seven West Media has a great year, as its own FY21 earnings outlined.

Seven Group ended the period with 160.9 million of cash and $804 million of Interest-bearing loans and borrowings.

What happened in FY21 for Seven Group?

Here's what drove the Seven Group share price in FY21:

Perhaps the most exhilarating news from Seven Group in FY21 was its extended battle for Boral.

In May, the company offered Boral shareholders $6.50 per share. Seven Group stated it only wished to increase its 23.3% stake in Boral to 30%.

However, after a huge amount of push back from Boral's board, including claims Seven Group's bid would undervalue Boral by as much as 40.5%, and a number of increased bids, Seven Group ended up paying $7.40 per share and winning 69.6% of Boral's outstanding shares.

Seven Group also completed a $500 million capital raise and $33 million share purchase plan in April. The proceeds eventually went towards its bid for Boral.

Finally, it committed to reaching net zero greenhouse gas emissions by 2040 within Seven Group's operating businesses, WesTrac and Coates.

What did management say?

Seven Group's managing director and CEO Ryan Stokes commented on the results driving the company's share price today. He said:

Today's result reflects the strong performance of our key operating businesses…

Our industrial services portfolio is benefitting from growth of mining production and the substantial pipeline of infrastructure activity… We undertook the takeover of Boral based on our confidence in the value opportunity presented by divesting Boral's international interests and more focused management to achieve improved margins and returns from a transformation of its Australian operations. The addition of Boral to SGH creates an industrial portfolio second to none in Australia.

The group's operating businesses and investments are well-placed to capture the available opportunities in their respective markets.

What's next for Seven Group?

Here's what might move the Seven Group share price in FY22:

Seven Group released a small amount of guidance for FY22, which assumes current COVID-19 outbreaks are brought under control and restrictions on construction are lifted in the near future.

The company expects WesTrac to deliver low single-digit EBIT growth in FY22. The lessened growth is expected to reflect the impact of the CAT parts price decrease which occurred in July 2021. Meanwhile, Coates is expected to report high single-digit EBIT growth after it continues to focus on costs and delivery of key infrastructure projects.

Additionally, Seven Group will consolidate Boral as a subsidiary in FY22. Seven Group plans to support Boral through its transformation program, refocus on Australia, and ensure Boral can deliver on its full potential with revenue, earnings, and margin improvements.

Finally, Seven Group will release its Sustainability Report next month.

Seven Group share price snapshot

The Seven Group share price has fallen 4% year to date. However, it has gained 17% since this time last year.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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