Why did the Soul Pattinson share price go backwards in June?

June was a tough month for the investment conglomerate. What happened?

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Key points

  • Soul Pattinson is an investment conglomerate with investments in various assets
  • Amid interest rate rises, share prices have been falling, hurting the underlying Soul Pattinson portfolio
  • Its biggest investment, Brickworks, suffered a share price drop of 11% in June

The Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) share price fell by 8.4% in June 2022. That compares to a decline of 8.9% for the S&P/ASX 200 Index (ASX: XJO).

So what contributed to such a tough run?

Last month, one of the biggest headline-grabbers was the Reserve Bank of Australia (RBA) increasing the interest rate by 50 basis points, or 0.5%.

The RBA wants to get on top of inflation and slow it down. However, the size of the increase was more than some in the market expected.

The RBA is currently expecting inflation to peak at around 7% in the quarter for the three months to 31 December 2022. Interest rates are also tipped to go higher in the coming months.

Interest rates can have a significant impact on valuation. In theory, higher interest rates are meant to pull down the valuation of assets.

Specific headwinds for the Soul Pattinson share price

For readers who haven’t heard of Soul Pattinson, it’s an investment conglomerate. It owns a portfolio of investments in ASX shares, private businesses, and other assets.

Therefore, if the underlying value of Soul Pattinson’s portfolio goes down, it may seem logical for the Soul Pattinson share price to decline as well.

Let’s look at how some of the company’s biggest investments performed in June.

At 31 January 2022 (the FY22 first-half ending date), the total (pre-tax) net asset value at Soul Pattinson was around $9 billion. This has reduced since then, but we can use it as an indication as to which shares may be having the largest effect on the underlying value.

At 31 January 2022, Brickworks Limited (ASX: BKW) was the biggest position in the portfolio, worth $1.48 billion. In June, Brickworks shares fell around 11%.

The TPG Telecom Ltd (ASX: TPG) shareholding was worth $1.4 billion at the end of the Soul Pattinson FY22 first half. TPG shares climbed almost 4% in June.

Its holding of New Hope Corporation Limited (ASX: NHC) shares was worth $753 million at the HY22 ending date. New Hope shares fell 6.75% in June.

Soul Pattinson’s stake in Macquarie Group Ltd (ASX: MQG) shares was worth $338.5 million at 31 January 2022. Macquarie shares sunk 11.5% in June.

Commonwealth Bank of Australia (ASX: CBA) shares in the investment conglomerate’s portfolio were worth $335 million at the end of HY22. CBA dropped 13.4% in June.

Resource giant BHP Group Ltd (ASX: BHP) shares were worth $244 million in FY22. BHP suffered a 7.5% decline in June.

The last one I’ll highlight was Tuas Ltd (ASX: TUA), which had a $225.7 million weighting at 31 January 2022 in the portfolio. The Tuas share price fell 16% in June.

As readers can see, most of its biggest holdings fell substantially over June, reducing the underlying value of the Soul Pattinson portfolio.

Soul Pattinson share price snapshot

Since the beginning of 2022, the investment conglomerate has dropped around 20%. It is also down almost 30% over the past 12 months.

Motley Fool contributor Tristan Harrison has positions in Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended Brickworks and Washington H. Soul Pattinson and Company 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 Scott Phillips.

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