Seven Group share price lights up as revenue rips 65% higher

Here's a closer look at how Seven Group performed in FY22.

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Key points

  • The Seven Group Holdings share price is up 1.64% to $17.99 on Wednesday
  • Earnings growth was subdued despite solid growth from WesTrac and Coates Hire
  • Management is expecting positive momentum in FY23

The Seven Group Holdings Ltd (ASX: SVW) share price will be squarely in the view of many investors on Wednesday amid the release of the company's full-year results.

At the time of writing, shares in the diversified investment holdings group are trading 1.64% higher to $17.99.

Seven Group share price gains amid mixed year

  • Revenue from continuing operations up 65.6% year on year to $8,013.4 million
  • Underlying EBITDA up 39.2% to $1,465 million
  • Group statutory net profit after tax (NPAT) down 4.3% to $607.4 million
  • Final fully-franked dividend of 23 cents per share declared
  • Statutory earnings per share (EPS) down 16.3% to $1.54
  • Cash and cash equivalents of $1,254.6 million at 30 June 2022

What else happened in FY22?

It might be a challenge for investors to decipher whether this was a positive result for Seven Group or not. While the company experienced a drastic increase in revenue compared to the prior year, the bottom line took a beating on a statutory basis.

Peering into the individual business units under the Seven Group umbrella might give us a better understanding of what happened.

According to the report, Seven's energy segment delivered the largest percentage increase on an earnings before interest and tax (EBIT) basis. This was thanks to the company's holding in Beach Energy Ltd (ASX: BPT), which benefitted from the uptick in demand for domestic gas — possibly providing momentum for the Seven Group share price today.

In contrast, Seven Group's holding in Boral Limited (ASX: BLD) was the largest anchor to earnings. The construction materials supplier experienced margin pressure amid construction lockdowns and rising energy costs.

Finally, both Coates Hire and WesTrac delivered solid earnings growth, up 16.3% and 6.3% respectively. The two segments constitute the two largest earnings contributors of Seven Group.

What did management say?

Seven Group managing director and CEO Ryan Stokes highlighted the importance of the company's diversified structure today. Commenting on the full-year result, Stokes said:

Today's result reflects the strength of our diversified group structure, delivering strong earnings growth across the majority of our businesses. The WesTrac and Coates results were particularly pleasing. Boral performance will be a focus for improvement and FY23 will see particular attention on pricing and margin discipline. Boral is expected to deliver earnings uplift and progress towards restoring appropriate profitability to an Iconic Australian company.

Additionally, Stokes noted that the group is making progress on simplifying the Boral business.

What's next?

Turning to what may lie ahead for Seven Group, management described several potential tailwinds.

For WesTrac, an ageing mining fleet was mentioned as a likely growth driver in FY23. Meanwhile, Coates Hire and Boral are expected to capture a boost from a substantial infrastructure and construction pipeline.

Consequently, the group is eyeing high single- to low double-digit underlying EBIT growth on top of FY22.

Seven Group share price snapshot

Although the diversified nature of the business may have protected its bottom line, the same can't be said for the Seven Group share price.

In the last 12 months, the share price has been chipped away to the tune of 21.37%. For comparison, the S&P/ASX 200 Index (ASX: XJO) is down a less disappointing 6.7%.

However, the valuation erosion has brought the group's price-to-earnings (P/E) ratio to 10.6 times. This is roughly in line with the current industry average.

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 has no position in any of the stocks mentioned. 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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