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#SGH 1HFY26 Results

jcmleng

Added 2 months ago

Discl: Held IRL 2.90%

SUMMARY

1. Flatish 1HFY26 YoY result, in both Revenue and EBIT, but both improved HoH, both of which is the normal seasonal trend

2. Boral’s performance stood out - it is firing on all cyclinders, WesTrac was flat driven by a sharp drop in capital equipment sales, Coates remains in recovery mode

3. Operating Cash flow spike of 32%, driven primarily by WesTrac, was a standout

4. FY2026 guidance of “low to mid single-digit EBIT growth”, previously downgraded from FY25, was maintained - EBIT was flat this half, should not take too much to push EBIT into low single digit EBIT growth, but is otherwise somewhat subduied

5. 1H26 Dividend was up 2c to 32c to match 2HFY25

Steady-as-she-goes solid performance, but not spectacular - this is absolutely not a bad thing for the portfolio given the increase in volatility everywhere else in the market.

REVENUE

Revenue improved HoH, but was marginally lower vs pcp
Boral’s above trend revenue made up for WesTrac’s below trend revenue, Coates was flat

GROUP PROFIT & EBIT

Group EBIT: Flat change vs 1HFY25, but sharply higher 21.0% HoH as has been, seasonally, resulting in an on-trend increase
Group Profit: Back to trend increase, 2.1% increase YoY, a sharper 24.6% rise HoH, a better seasonal recovery given 2HFY25’s drop

SEGMENT EBIT

WesTrac and Coates EBIT grew more than trend, Coates, Energy and Media remain on trend/flat

WESTRAC

Sharp hit to revenue due to normalising of capital sales - this was previously flagged
EBIT margin improved 0.6% v pcp, normal seasonal jump HoH
Operating cashflow was impressive - a huge 92% jump YoY
Following last years big capital sales, equipment population has increased, but ageing has flattened, still some years away from battery-driven fleet replacement

BORAL

Looks like its on a tear - Revenue up 7%, EBIT, EBITDA and EBIT Margin up > Revenue %, operating leverage appears to be kicking in
Margins continue to grow, up another 41bp, continuing uptrend - Commentary on margin gains being structurally embedded is encouraging - will be interesting to see if this stabilises or continues to grow in the coming halfs or if there is more to come
Cash flow is steady, as is pricing
Lots to look forward to - increased volumes, sustained pricing, with customer activity on the rise

COATES

Still subdued and in recovery mode
Cost takeouts are not doing too much to offset the revenue dip

FINANCIALS

Stronger cash flows is bringing net debt down

FY2026 GUIDANCE REITERATED

#2HFY25 Results

stale

jcmleng

Added 7 months ago

Discl: Held IRL

SUMMARY

Flatish 2HFY25 HoH result, in both Revenue and EBIT, which is the normal seasonal trend, but YoY was also flat which the market did not like.

Guidance was FY2026 was also downgraded to “low-mid single-digit EBIT growth” from the usual “high-single digit EBIT growth”, which did not help.

2H25 Dividend was up 2c to 32c - when SGH raises the dividend amidst flattish results, you know, they know, it wasn't great ...

Notwithstanding this, it is never wise to bet against the Stokes family, but FY26 will be interesting amidst the cautious outlook and ongoing uncertainty.

Revenue - WesTrac on trend growth, Boral flat, Coates fell 9%

EBIT - overall on trend growth

Segment EBIT - Westrac on trend growth, Boral growth continues to accelerate, Coates and Media trending downwards, Energy is flattish

WESTRAC

Revenue growth was average, up 4% - strong capital sales offset by lower average parts pricing.
Capital sales $2.2b, up 12% - flagged to revert to recent averages
Services $3.9bm flat, but installed fleet continues to age to 12.4 years, up 7% YoY, underpinning ongoing service revenue
Battery fleet replacement will drive next wave of capital fleet replacements - earliest will be in 2028, services will continue to buffer revenue and earnings in the meantime

Was a bit surprised by the uptick in capital sales and the flat services, given that the Battery Electric Mining Truck is due in 2028-ish - was expecting the exact opposite, higher services, less capital sales as miners sweat existing assets until the Battery Trucks become available.

BORAL

Revenue growth flat - resilient demand from engineering and pricing traction offsetting volatility in road and residential activity
Cost efficiencies have kicked in to drive operating leverage
Expecting recovery in residential in CY26 underpinned by government housing programs, interest rate moderation - operating leverage will become more evident
Pricing traction sustained

The challenge for Boral in FY26 and one to watch out for, will be to sustain the gains achieved by Vik Bansal once he exits.

COATES

Revenue down 9%, EBIT down 9% normalised for the sale of Coates Indonesia in the PCP - mixed market conditions, mostly in VIC and SA
Cost takeouts occurred in FY25 - workforce, branch footprint, repairs & maintenance

#Boral CEO Succession

stale

jcmleng

Added 9 months ago

Inevitable and probably imminent when SGH took BLD private, as Vik publicly said he wanted to front a public company, but still sad to see Vik go.

I have a lot of issues with crazy aggro CEO's and given Vik's much highlighted style-related challenges at Cleanaway, I was very weary when SGH announced Vik to run BLD. But gee, he has done a good job turning it around and putting it on the right trajectory. He will be missed. The market made that clear this morning!

SGH has a good track record of getting the right managers in place (bar Seven West Media, but thats another story on its own), so have confidence that they will eventually find the right guy to succeed Vik and see the rest of the transformation through.

Which makes the SM LGI conversation tomorrow that much more interesting as Vik is the Chairman of LGI. He has a track record of making something of things he takes on ...

Discl: Held IRL

Valuation of $24.77

stale

Bear77

Added 5 years ago

23-Feb-19: If a few things go right for them, they could easily move into the $20s. (My TP for SVW was $19.50 when I wrote this) Those few things include a higher oil price, M&A around their main oil play BPT (Beach Energy), greater demand for their Caterpillar earthmoving machines and equipment (especially in WA), and a good year for Channel 7. This can be a good trading stock. The chart suggests they trend well, so you can ride the trend, which is on the up at the moment (23-Feb-19). 24-Aug-19: Update: The trend did continue straight up to my $19.50 TP (reached it in one month - in March 2019), but has been quite choppy since. I've been out of SVW since March. If they get back down to $15 I'll get interested again. 19-Feb-2020: Well, they didn't get down to $15 again, but I'm interested again regardless. They reported well today and are up around +7% so far on the back of that report. Their outlook statement was positive: "The Group is well positioned to capitalise on the strong medium to long term outlook for mining production, infrastructure investment, east coast gas demand and other domestic LNG export opportunities." Mr Stokes said: “We expect our WesTrac and Coates Hire businesses to be able to leverage their market leading positions to benefit from the new projects planned by major miners and the growing pipeline of government infrastructure projects. In light of this outlook the Group expects FY20 underlying EBIT to be high single digit growth on FY19." I'm back on board. 24-Aug-2020: And then I took profits and sold out again. And then they dived down to $10 in the March pandemic madness. And I didn't buy back in - because I was spoiled for choice and I was concentrating on other sectors. I actually did buy quite a bit of Beach Energy - which I recently exited - and BPT is actually the core holding in SVW's Energy Division ("SGH Energy"), but I wasn't looking at SVW in March, I was buying companies like MND, NWH, BPT and others. Some that I bought haven't bounced back too much yet, like WPL and S32, but I still think they will - eventually. Most have bounced brilliantly. There are 5 companies that I hold that are all up over 20% this month alone (August 2020 - from 31-July-20 to 24-Aug-20) - including ARB, CDA, FOR, MND and NWH. You can't pat all the fluffy dogs. OK, so what's Seven Group Holdings (SVW) worth today? About $22.77 I reckon. I.e. no change from my previous PT. Should get back up there within 12 to 18 months, quicker if we get a CV-19 vaccine that works and is widely distributed. So there's around 20% upside from here, if I'm right. That sounds OK, but I think there's more than 20% upside over the same period in other companies. For instance, from around the $12 level, where they are now, I think MND (Monadelphous Group) can rise 50% over 12 to 18 months. I think NWH, S32 and WPL can do the same. I think there are a number of smaller companies that could double their SP over that period, however they all come with higher risk (of losses). So, that's why I'm not jumping back on SVW at this point. The risk/reward equation just doesn't look enticing enough. 22-Feb-2021: SVW has been sitting at or around my previous share price target of $22.77 since late November, so for about 3 months now, and I think they more likely to break higher than to fall lower in the absence of a market correction or serious downturn. I'm not sure if they are ready to break through $25 just yet, so I'll make my new PT $24.77, by late Feb 2022 (so a 12-month price target). I'm not currently holding them. I usually buy them when they've been smashed, and then sell them when they've recovered and have stopped rising and are moving sideways - like now. I was not holding them for this most recent recovery however - my money was invested elsewhere. From $10 to $22.77 would have been a nice little earner though... in 8 months... 25-Aug-2021: I still like that $24.77 PT for late Feb 2022, however a lot will depend on what happens with Boral (BLD) - which SVW now owns 70% of, and it looks like MQG are building a small stake in BLD also - up to 7.34% from 6.2% on 04-Aug-2021. I'm not holding SVW currently as there seems to be limited upside and because Kerry and Ryan Stokes run it like a private company and use it to takeover other companies, owning SVW shares doesn't always work out to be the best option. Sometimes it's better to get involved instead in companies they are taking over, or building stakes in. I bought shares in Beach Energy (BPT) and Drillsearch when Kerry was building his 20% stake in each of those energy companies, using SVW, then I benefited when he orchestrated the merger of the two companies (via DLS being taken over by BPT). That said, I'm not a BLD shareholder either at this point. Just an observer from the sidelines.

#Presentations/Reports

stale

Bear77

Added 6 years ago

12-June-2020: Seven Group Holdings Investor Presentation

#Bull Case

stale

Bear77

Last edited 6 years ago

16-Jan-2019: Briefly, exposure to oil/gas (including 28.57% of Beach Energy - BPT), exposure to mining and construction via Cat dealerships in WA, NSW & ACT (WA=WesTrac) and Coates Hire, plus exposure to media (40.88% of Seven West Media, SWM, Channel 7 should do well in 2019 vs 9 & 10), plus this is Kerry and Ryan Stokes' main listed company, and you can do worse than follow a self-made billionaire like Kerry Stokes.

Recently traded at over $22 (in October) - and now back to just above $15 - due to shift in sentiment (energy + mining). May well be heading back up if Trump and Jinping do a trade deal.

http://www.westrac.com.au/Industries/Pages/Earthmoving-Equipment.aspx

http://www.coateshire.com.au/

http://www.sevengroup.com.au/

http://www.sevengroup.com.au/our-investments/sgh-energy

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