Is the Soul Pattinson share price a buy after falling over 10% in 2022?

Soul Pattinson shares have fallen. Is it worth buying?

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Key points

  • The Soul Pattinson share price has seen volatility in the first few months of 2022 
  • Last month, the company reported its FY22 half-year result which showed a rise in cash flow 
  • The broker Morgans rates it as a buy, with a price target of $30.60 

The Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) share price has dropped by over 10% since the start of 2022.

But, since mid-March, the Soul Pattinson share price has risen by 8%.

Is it still an opportunity, or has it recovered too much to be good value?

What does this ASX share do?

Soul Pattinson is an investment house that owns a diversified portfolio across different sectors, with some ASX shares being significant holdings within the business.

It is invested in sectors like telecommunications, building products, property, resources, agriculture and financial services.

In terms of the biggest ASX shareholdings, these are some of the biggest positions: Brickworks Limited (ASX: BKW), TPG Telecom Ltd (ASX: TPG), New Hope Corporation Limited (ASX: NHC), Macquarie Group Ltd (ASX: MQG), Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), Tuas Ltd (ASX: TUA), Wesfarmers Ltd (ASX: WES), CSL Limited (ASX: CSL) and Pengana Capital Group Ltd (ASX: PCG).

What has happened to the Soul Pattinson share price?

There has been a lot of volatility in the ASX share market since the start of the year. There has been an increasing focus on strong inflation and the possible interest rate rises to deal with that. There is also the ongoing Russian invasion of Ukraine.

However, one of Soul Pattinson’s main holdings called New Hope Corporation, a coal miner, has seen its share price rise by 43% this year amid a strong environment for coal prices.

The investment house recently announced its FY22 half-year result. The group’s regular net profit after tax was up 281% to $343.7 million thanks to increased commodity prices, property profits in Brickworks and higher dividend income after the Milton merger.

HY22 net cash flow from investments increased 114% to $182.6 million, while cash flow per share increased by 42% year on year.

The company’s portfolio value was $9 billion at the end of the first half of FY22, while the fully franked interim dividend was increased by 11.5% to 29 cents per share. That was the 24th consecutive increase in interim dividends.

Is the Soul Pattinson share price a buy?

Morgans rates it as a buy. The broker’s price target on Soul Pattinson is $30.60. That implies a potential rise of the Soul Pattinson share price of more than 10%, plus the dividends.

Soul Pattinson boasts that an investment in the company over the last 20 years has increased over ten times. The annualised total shareholder return over the last two decades has been an average of 13% per annum. However, past performance is not a guarantee of future results.

The company’s investment philosophy is to be diversified, unconstrained, long-term and provide capital protection.

The unconstrained part of the strategy allows the company to “invest in and support companies from an early stage and grow with them over the long-term.”

How does Soul Pattinson achieve capital protection? The company says its portfolio of assets generate “reliable cash(flow) through market cycles which serves to protect downside in market corrections.”

At the current Soul Pattinson share price, it has a trailing grossed-up dividend yield of 3.4%.

Motley Fool contributor Tristan Harrison owns Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Brickworks, CSL Ltd., and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns and has recommended Brickworks, Washington H. Soul Pattinson and Company Limited, and Wesfarmers Limited. The Motley Fool Australia has recommended Macquarie Group Limited and 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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