Soul Patts (ASX:SOL) share price slips on FY21 earnings update

Shareholders are given a clearer vision of Soul Patts’ FY21 results.

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The Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) share price is moving lower in early trade on Monday. This follows Soul Patts releasing a trading update pertaining to its FY21 full-year performance.

At the time of writing, the Soul Patts share price is fetching $34.79, down 3.33%.

What’s moving the Soul Patts share price?

In a trading update, Soul Patts made shareholders aware of material impacts on its expected net profit after tax (NPAT) in FY21. While the term ‘impacts’ may sound menacing, the numbers are positive for the investment company.

Shareholders could be in for a treat as Soul Patts’ final report for FY21 fast approaches. According to the release, the company now anticipates group consolidated NPAT in the range of $316 million to $336 million. For comparison, NPAT for the full year prior came in at $170 million. Hence, the provided trading update indicates a potential 86% to 98% increase in earnings.

As explained in the update, there are 3 main reasons for the bottom line strength. Firstly, New Hope Corporation Limited (ASX: NHC) disclosed in its 31 July quarterly report that earnings before interest, tax, depreciation, and amortisation (EBITDA) are forecast to be $372 million. Soul Patts holds nearly a 40% stake in the coal-producing company.

Secondly, brickmaking company Brickworks Limited (ASX: BKW) has highlighted its expectation for record earnings in FY21. Soul Patts own approximately 46% of the company.

Lastly, base metal mining company Round Oak is expected to report net profits of $64 to $68 million for FY21. This would represent a radical shift from a $43 million loss in the previous financial year.

On the other hand, the company noted that these gains will be partially offset by a reduced contribution from TPG Telecom Ltd (ASX: TPG). As a result of the telecom giant’s merger with Vodafone, Soul Pattinson doesn’t receive a proportion of earnings based on its equity ownership. For that reason, it only received $18 million in dividends in FY21 from TPG. In contrast, Soul Patts was distributed with $72 million in accounted profit.

What about statutory profits?

The Soul Patts share price might be waning on Monday because of how the statutory profits could look in FY21. Specifically, the $1.05 billion accounting gain from the derecognition of TPG as equity won’t be repeated this year. Due to the one-off gain in the previous year, investors should expect a materially lower statutory profit.

Finally, the company will release its preliminary final report for the FY2021 financial year on 23 September. Likely, shareholders will be watching the Soul Patts share price with great anticipation leading up to this event.

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Motley Fool contributor Mitchell Lawler 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 owns shares of and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended TPG Telecom Limited. 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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