The Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) share price is in the green today after the conglomerate released its FY21 earnings.
Let's take a closer look.
Soul Pattinson share price gains after robust earnings in FY21
- Group Regular net profit after tax (NPAT) up 93% year on year to $328.1 million
- Group profit after tax atttributable to members down 71% year on year to $273 million
- Net asset value (pre-tax) at $5.8 billion, up 12% on the year
- Net cash flows from investments reduced to $180.3 million, a 29% year on year drop
- Total FY21 dividend of 62 cents per share, an increase of 3% from FY20.
What happened in FY21 for Soul Pattinson?
The Soul Pattinson share price is now changing hands at $37.24 apiece, a 4.5% jump from the open.
At first glance, it's obvious there is a disconnect in group regular profit and group profit after tax attributable to members.
Soul Pattinson explains this is due to a one off "accounting gain" of $1.5 billion that was recognised in FY20, which made its profit figures appear abnormally larger last year.
The adjustment was due to Soul "derecognising" telco company TPG Telecom Ltd as an associate "after its merger with Vodafone". Net cash flows from investments will also take a hit due to this same offloading, due to the lost dividends from TPG.
It adds that group regular profit is a "better reflection of the underlying performance of major investments" as it excludes one off items like the one described above.
As such, the group's 93% gain NPAT was driven by growth in key investments in Soul's portfolio.
Brickworks capitalised on the local building market's strengths and contributed $82 million, a 95% year on year gain.
New Hope also contributed $61 million, a climb of 45% propelled by strengths in the coal markets.
Round Oak Minerals also benefitted from strengths in the broader commodity markets and generated $103 million in revenue for the company.
"Other investing activities" was a major performer also, increasing their contribution by 87% to $129 million, as "markets recovered from Covid-19 disruptions".
Finally, Soul increased its dividend to 62 cents for FY21, a 3% gain over the year prior. This was completed with a final dividend of 36 cents per share.
Overall, it appeared to be a significant growth period for the group, with its major portfolio segments each growing substantially over the year. This could weigh in on the Soul Pattinson share price moving forward.
What did management say?
Regarding the group's dividend increase, Soul Pattinson chair, Robert Millner proudly said:
One of the strengths of WHSP's portfolio over the years is the way that the cash generation from assets has supported increasing dividends through any market conditions.
Extending praise on the dividend, Millner added:
While the cash generation was less than the prior year due to a large special dividend paid by TPG in FY20, the cash from the portfolio remains strong and has again supported increased dividends to shareholders. Total dividends paid by WHSP in FY21 represents 82% of Net cash flows from investments.
What's next for Soul Pattinson?
Soul Pattinson's managing director, Todd Barlow, acknowledged that "markets remain volatile", and that there is a need to "constantly adjust portfolio allocations" with active management.
The company is also "very excited" about its upcoming merger with Milton. It says the blending of the two entities will "deliver a significant increase" to Soul Pattinson's scale, and provide "additional liquidity to fund strong deal flow".
It is also a diversification play for Soul, given its "higher cash generation" and "additional liquidity" to fund future investments.
Soul sees an additional $2 billion in liquidity from the deal to provide future investment financing.
The integration will also add "up to 30,000 new shareholders" and will result in a "significant increase in (Soul's) market capitalisation".
The Soul Pattinson share price has climbed 18% this year to date and has gained just over 50% over the past 12 months.
