The Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) share price has done very well in the last 12 months. It's up by 30%, as we can see on the chart below. This compares to a rise of 7.4% for the S&P/ASX 200 Index (ASX: XJO).
Why have Soul Pattinson shares done so well?
The investment conglomerate has benefited from the performance of its portfolio.
It has a diversified portfolio across a range of assets, including telecommunications, resources, financial services, and more.
A number of its biggest positions have performed strongly. Looking at its largest positions as of 31 July 2022 (the end date of the FY22 reporting period):
The New Hope Corporation Limited (ASX: NHC) share price has risen 25% in the past year.
The Brickworks Limited (ASX: BKW) share price is up 33%.
The BHP Group Ltd (ASX: BHP) share price has risen 15%.
The Tuas Ltd (ASX: TUA) share price has gone up 42%.
However, the biggest holding as of 31 July 2023 was TPG Telecom Ltd (ASX: TPG), which is down 18% over the last year.
The share price growth of individual companies doesn't account for all of the dividends as well. New Hope particularly has paid huge dividends to Soul Pattinson in the last 12 months thanks to the jump in coal prices.
The investment house is also benefiting from much stronger returns from its 'structured yield' portfolio, which is "actively managed structured credit investments to achieve strong risk-adjusted returns". The weighted average cash yield of this portfolio is 12.1% per annum.
Is it too late to invest?
Soul Pattinson revealed in June that its pre-tax net asset value (NAV) was $10.6 billion at 30 April 2023, and that its total portfolio return of 10.1% had outperformed the All Ordinaries Accumulation Index (ASX: XAOA) by 1.4%.
The Soul Pattinson share price is very close to where it was at the end of April, while the market capitalisation of the ASX 200 share is $11.2 billion. It doesn't seem to be trading at a (noticeable) discount to the NAV right now, whereas the NAV was at a 6.9% discount to the Soul Pattinson share price at 31 July 2022. That discount seems to have been recovered.
I wouldn't call Soul Pattinson a bargain at these levels, with the portfolio value higher and the price-to-book ratio seemingly less attractive.
It's still one of my favourite businesses because of its diversification, and I believe it's an ASX 200 share that can outperform over the long term. In the last ten years to 30 April 2023, the total shareholder return was an average of 11.1%, compared to 8.1% for the All-Ords Accumulation Index.
If the Soul Pattinson share price were to rise to, say, $45 by 2030 then that would represent capital growth of 44% over six and a half years, with the dividends paid being a bonus. If someone had invested a year ago at $24, then reaching $45 would represent a rise of 87.5% (over one more year).
So, clearly, if we could choose what price to invest at then July 2022 would have been better than July 2023. But, I think the investment team at Soul Pattinson will be able to continue to identify opportunities that can enable it to outperform, particularly because it can invest in any asset class. The company can also invest with a contrarian mindset, investing in unloved names.
The company's defensive, cash-flow-focused investments could mean it can provide some protection if there is a market sell-off.
