Soul Pattinson (ASX:SOL) share price on watch after 281% surge in net profit

All eyes are on this ASX 200 performer today

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Key points

  • Soul Pattinson delivers a 281% increase in adjusted net profit to $344m
  • But statutory net profit swings dramatically to a loss of $643m due to one-off impact from acquisition of Milton
  • The group credits multiple tailwinds for the strong surge in adjusted net profit

The Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) share price is in the spotlight this morning after it posted an increase in interim profit and dividend in its financial results for the first-half of FY22.

The diversified investment firm reported a 281% uplift in adjusted profit after tax to $343.7 million and lifted its dividend by 11% to 29 cents a share.

Write-down drags Soul Pattinson to statutory first half loss

However, statutory net profit after tax (NPAT) swung dramatically to a loss of $643 million in the six months to end January 2022 from a gain of $68.9 million in 1HFY21.

The loss was largely due to a one-off write-down of goodwill associated with its acquisition of Milton Corporation.

Operational highlights

  • Net cash flow from investments on a like-for-like basis (excluding the acquisition of Milton) was up 81% (compared with first half FY21).
  • Pre-tax net asset value per share up 3.4% for the period (outperformance of 8.6% against market).
  • After tax net asset value per share up 17.7% over first half (outperformance of 22.9% against market).
  • Milton successfully integrated and providing greater diversification and liquidity to pursue new investments across a range of asset classes.

Exposure to materials lifts Soul Pattinson's first half profits

But shareholders still have many reasons to cheer. The sharp increase in Soul Pattinson's "regular" NPAT is driven by several factors.

It's exposure to resources and material is one factor. The group owns a large stake in coal miner New Hope Corporation Limited (ASX: NHC) and copper and zinc miner Round Oak Metals.

Its holdings in Brickworks Limited (ASX: BKW) is no doubt a boon too. This is especially after the building materials and property group also delivered a large increase in profits.

Commenting on the results, group managing director Todd Barlow said:

We are particularly pleased with the strong performances from New Hope, Brickworks and Round Oak Metals which all saw significant increases in profitability.

Our focus is on investing in, and supporting, businesses with strong prospects over the long term and backing good people to manage those investments. Resilient businesses which are low-cost and generate solid cashflows should continue to perform in all parts of the cycle.

Rising markets and merger benefits

Another driver for Soul Pattinson's strong profit results is the strong returns generated by the S&P/ASX 200 Index (Index:^AXJO) during the reporting period.

Management also credits the higher dividends it collected from its large cap share portfolio for the profit surge.

Then there is its acquisition of Milton, which contributed positively to its earnings report card. The merger helped pushy net cash flow from investments by 42% per share.

Further, it improved liquidity in Soul Pattinson's shares and lifted net asset value per share by 17.7% over the first half. This represents an outperformance of 22.9% against its market benchmark.

Positive outlook could bolster Soul Pattinson's shares

Management has painted a rosy outlook for the group. Barlow said that operational performance across the group's portfolio "continues to be robust". This is despite COVID-19, devastating floods and geopolitical tensions.

What's more, Soul Pattinson hinted that it has sufficient firepower to buy the market dip. It was a net seller of assets during the reporting period when valuations were higher.

It noted that valuations have dropped to more reasonable levels and it sees strong opportunities in private equity and structured credit.

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns and has recommended Brickworks and Washington H. Soul Pattinson and Company 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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