Straws are discrete research notes that relate to a particular aspect of the company. Grouped under #hashtags, they are ranked by votes.
A good Straw offers a clear and concise perspective on the company and its prospects.
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20-Nov-2020: REG: Regis Rejects Non-binding Indicative Offer
Also, 19-Nov-2020 (4:42pm, i.e. after market close): Non-binding indicative proposal to acquire Regis Healthcare and (4:48pm) Becoming a substantial holder from SOL
SOL (Washington H Soul Pattinson & Co) have an arrangement with Ashburn Pty Ltd and Ashburn owned 27.23% of Regis Healthcare (REG) yesterday. SOL and Ashburn Pty Ltd have together launched an offer to acquire REG for $1.85/share, reflecting a 25% premium to last night’s $1.475/share close. So far, REG is up around +20% today, at around $1.77, but have been as high as $1.815, so there is obviously some doubt that this deal will go ahead, particularly as the REG board have rejected it this morning.
WHSP (SOL) has proposed two alternative forms of consideration to Regis shareholders, being full cash consideration or a scrip alternative in a newly incorporated company, allowing Regis shareholders to retain an exposure to Regis as a privately operated business. Funding is expected to be provided by cash, undrawn credit facilities and other liquid financial assets on WHSP's balance sheet.
Now we wait and see if any other bidders join the fray, or if SOL/Ashburn are prepared to sweeten their offer to get the REG board onside.
We were discussing PE (Private Equity) companies here over the past couple of days, and I mentioned that WMA have around one quarter of their LIC invested in PE companies, and that IFT is a listed company that operate exactly like a PE company [I hold IFT shares]. Well, WHSP (SOL) are another company that do operate in a similar way to PE, however SOL do tend to have a longer term focus and are prepared to hold many of their positions for decades. They also don't mind the odd shorter term deal here and there, but they definitely have a longer term focus than the majority of Private Equity consortiums out there. The big turn-off for me however with SOL (meaning lately, because I used to hold them) is their controlling 50% interest in New Hope Coal, one of Australia's largest thermal/energy coal producers. If they offloaded their NHC stake, I would probably buy back into SOL - at the right price.
24-Sep-2020: WHSP FY20 Results Media Release plus WHSP FY20 Presentation and Preliminary Final Report
Cash generation from investments up 49%, 20 years of increased dividends
Key highlights:
*Regular profit after tax is a non-statutory profit measure and represents profit from continuing operations before nonregular items. A reconciliation to statutory profit is included in the Preliminary Final Report on page 25.
**Refer to Preliminary Final report – Alternative Performance Measures - for the definition of net cash flow from investments
WHSP’s objective is to deliver to its shareholders:
--- click on links above for more ---
Comments on above results
Net profit after tax (including non-regular items) attributable to members
The statutory profit after tax attributable to shareholders was $953.0 million compared to $247.9 million last year. The increase in statutory profit after tax of $705.1 million was largely due to the accounting gain of $1.05 billion on de-recognition of TPG Telecom as an equity accounted associate following the completion of the TPG/Vodafone merger, partly offset by New Hope Corporation impairments and restructuring expenses incurred in its Queensland mining operations. The prior year included the gain on the sale of WHSP’s 160 Pitt Street Mall property.
Regular profit after tax attributable to members
The regular profit after tax attributable to shareholders for the year ended 31 July 2020 was $169.8 million compared to $307.3 million for the previous corresponding period.
The decrease in regular profit after tax was mainly attributable to the following:
Refer to Chairman’s Review and Review of Group Entities for further details on the results
08-Jun-2020: I'll start with an article published on Friday by Mining Monthly, and lower down I'll include a very interesting article on BlackRock that was published in the Sydney Morning Herald (SMH) this morning.
05-June-2020: www.miningmonthly.com: High Court set-back for New Acland stage 3 expansion
This story highlights the growing headwinds that thermal coal companies are facing with pressure from all sides, particularly in relation to developing NEW mines. New Acland is the big new mine proposed by New Hope Coal (NHC) which is 51% owned by SOL (Washington H Soul Pattinson).
I consider their controlling interest in NHC to be SOL's main downside. I exited SOL (from my SMSF) earlier this year, replacing them with Saracen (SAR), a gold miner. I don't mind some metallurgical coal (or met coal) exposure, such as I have through S32 (they also own thermal coal mines in South Africa but they are in the process of selling all of them to a South African majority-black-person-owned-enterprise - which will leave S32 with no thermal coal assets, BHP have been much slower to signal their intent to move away from thermal coal).
Late last year, BlackRock, the world's largest investment firm, made headlines announcing that it would put climate change at the centre of its investment strategy.
In a letter to investors the firm’s founder and chief executive Larry Fink said financial and climate risk had converged and that capital would soon start flowing away from fossil fuel industries.
See here: June 8th (today): SMH: 'Everyone was watching': BlackRock is showing its hand on coal
As a result BlackRock – which has an eye watering $10 trillion in assets under management – would begin abandoning companies heavily invested in thermal coal and demanding that companies report their exposure to climate change risks, their contribution to emissions and their plans to reduce them.
Fink warned the world’s boardrooms that BlackRock would be willing to "vote against management and board members when companies are not making sufficient progress".
The announcement was greeted in climate change advocacy circles with a mixture of celebration and scepticism.
Due to its sheer size BlackRock is one of the world’s largest investors in fossil fuels and it has a history of opposing shareholder resolutions demanding climate change action. Was this corporate greenwashing, or would BlackRock really act?
“This is the letter, and stance, that’s put us on pins and needles – everyone is watching to see if BlackRock follows through on these commitments,” wrote the Union of Concerned Scientists, one of the leading climate advocacy groups in the United States on its blog.
BlackRock’s move could signal the beginning of the end of the corporate dominance of fossil energy companies, or not much at all.
BlackRock’s recent actions suggest the giant has begun putting its money where its mouth is.
In May BlackRock published an update to the January missive, revealing it had divested from companies that derived a quarter of their revenue from thermal coal and warned again it would vote on the issue at annual general meetings.
Later that month it acted. It voted against the re-election of two ExxonMobil directors, saying it believed they had failed to make progress on climate change action or reporting; and in favour of a shareholder resolution to split the role of chief executive and chairman. It also supported a resolution demanding that the US oil giant Chevron report on how its direct and indirect lobbying aligns with the Paris climate agreement goals.
The votes were praised by climate advocates, though there was disappointment that BlackRock did not make public how it voted on climate-related proposals at other major firms, in particular at the bank JP Morgan Chase.
But it was a warning shot fired off by BlackRock to the South Korean utility Kepco that attracted the attention of Tim Buckley, an energy analyst with the pro-renewables Institute of Energy Economics and Financial Analysis.
At the end of May it was revealed that BlackRock had demanded that Kepco explain its strategy in investing in coal-fired power plants in Indonesia and Vietnam. According to a statement its investment stewardship team “escalated our concern to the company’s CEO via a formal letter ... It requests enhanced disclosure, including a clear strategic rationale justifying the company’s involvement”.
This is significant to Australia not just because Kepco is one of the largest financiers of coal-fired power plants in the region, says Buckley, but because the plants it has been channeling funds to are in the countries that coal industry advocates say are the future for Australian coal exports.
“Kepco is at the mercy of BlackRock, and the growth of the Australian coal industry is at the mercy of players like Kepco,” says Buckley.
But there is more to it. In January BlackRock said it would abandon thermal coal miners – which it did by May – but it did not mention coal-powered generation companies. The Kepco warning suggests that BlackRock is moving on both.
It is not alone. In April, the Japan Bank for International Cooperation, a company known by critics as “the coal store” announced it would no longer finance off-shore coal projects, bringing the bank into line with other major Japanese lenders.
“Financiers, investors, insurers, all the corporate money is headed for the door,” says Buckley.
This year the world’s financial markets and fossil fuel companies have been brutalised by COVID-19 turmoil. The world’s largest coalminer, Peabody, has lost more than 50 per cent of its value while America’s major banks have lost an average of around 30 per cent.
Over the same period BlackRock is up by 1 per cent and was last month referred to by CNN as “the new king of Wall Street”.
--- ends ---
That SMH (Sydney Morning Herald) article was published this morning, and was written by Nick O'Malley.
Nick O'Malley is National Environment and Climate Editor for The Sydney Morning Herald and The Age. He is also a senior writer and a former US correspondent.
I personally accept the overwhelming science that climate change is real and is heavily influenced by what humans have done and continue to do all over the planet. However, regardless of whether you are a climate change believer or a skeptic, or your view on why climate change occurs, the absolutely undeniable fact is that there is a severe backlash building against companies that derive 25% or more of their revenue from fossil fuel related activity such as thermal coal mining and oil production. Therefore, regardless of each of our personal beliefs, there are serious risks attached to continuing to invest in those companies.
NHC is directly in the firing line. SOL perhaps not so much because while they have a controlling interest in NHC, they also own large chunks of other succesful companies in totally different sectors, such as 25.3% of TPG (TPM), 19.3% of API, and 44.1% of Brickworks (BKW). SOL also own positions in dozens of smaller companies, both listed and unlisted. Some of the listed ones include Clover Corporation (CLV, 22.9%) and Palla Pharma (PAL, formerly TPI Enterprises, 23.2%). Some of SOL's investments (such as CLV & PAL) are done either entirely or substantially via BKW because Brickworks also has a large investment division. Brickworks are regarded as a subsidiary of SOL under the cross-shareholding arrangements between the two companies, so any substantial shareholding that BKW have is also regarded as being an identical substantial shareholding by SOL, so you'll often see matching notices by the two companies when the position is held by BKW investments. If the SOL percentage is higher, it just means that there are additional shares held by Soul Patts (SOL) that are independent of the Brickworks (BKW) position. That is all to say that while both SOL (and BKW to a lesser extent) have exposure to thermal coal production (via NHC), the percentage of their overall revenue and earnings respectively that are derived from fossil fuels such as coal and oil production is less than 25%, so a fund manager such as BlackRock aren't worried about them like they are with NHC. However, while BlackRock might not dump SOL or BKW shares, or try to influence the voting at their AGMs, SOL would still be impacted by NHC's value continuing to deteriorate, and NHC are directly in the firing line of fund managers like BlackRock, as I have already said.
So the risks are real, both to our climate, our future generations, and to our investments.
Disclosure: I currently have no direct exposure to NHC, SOL, BKW, API or CLV. I have held all of them - except NHC - in the past. I currently hold PAL and TPM shares.
26-Mar-2020: A number of announcements were released by SOL today, including:
Half Yearly Report and Accounts
As expected, with their large positions in NHC (New Hope Coal) and TPM (TPG Telecom), plus their CopperChem business, WHSP (Washington H Soul Pattinson, ASX: SOL) have announced lower revenue and lower earnings, yet have once again increased their dividend, as they ALWAYS do.
"WHSP does not consider its earnings to be the key indicator of the Company’s performance. As with any investment portfolio, the key drivers of success are growth in the capital value of the portfolio and growing dividends."
They pay their dividends out of their cashflow, and their cashflow remains strong.
This company is a core holding in my super portfolio, and while their SP will fluctuate in the short term, it rises consistently each decade, and they pay higher dividends every single year. There is only one other decent sized ASX-listed company that have that sort of multi-decade track record of consistently raising their ordinary dividends - and that company (which I also hold) is Ramsay Health Care (RHC).
Just some comments on Barney's Bear Case Straw.
Firstly, there are some good points there.
Concerning New Hope Coal, coal is always going to be a devisive topic, but we will still need coal for some time to come. NHC have some advantages, and the main one is that they own a lot of their own infrastructure. This gives them a cost advantage over many of their competitors and enables them to make money in a variety of coal-price-scenarios.
Concerning Brickworks, while bricks are BKW's main business, it's not all they do. Pavers and bricks are still being used; the trend of lower percentages of bricks being used in the average house isn't new, and Brickworks is well aware of it. Brickworks have a large investment portfolio and also a lot of land that is held on their books at less than its real value (the value that it would fetch if it was sold today). Brickworks have invested a lot into their brick and paver manufacturing facilities and equipment over the past 10 years and now have a cost advantage over most of their competitors. As the use of bricks decline, it will effect all players in the industry, but those most likely to go out of business first will be the higher cost producers, and those left standing will be the lowest cost producers, like BKW.
The challenges in the telco space are well known and look to be priced in to me - with both Telstra and TPG. TPG are going through a massive capex (spending) phase now, with building their mobile networks in Australia and Singapore. However, sometimes the market forgets just how good David Teoh is. Rather than expecting TPG Telecom (TPM) to have cost blowouts, I would think it highly likely that they will surprise on the upside. I don't think there are many people here in Australia who know telecommunications better than Teoh, or who are better managers than Teoh. TPG have a stable and supportive cornerstone investor/substantial shareholder in Washington H Soul Pattinson (SOL), who back Teoh 100%, and took up their full entitlement in the last TPG cap raising. I think SOL are very comfortable with their TPG Investment, and that it will be valued by the market substantially higher in 5 years' time.
There are upside and downside risks with every investment portfolio. SOL also have interests in API, CopperChem, BKI, Clover Corporation, Pengana Capital, Milton Corp (MLT), TPI (ASX:TPE), Ampcontrol and Pitt Capital, plus a number of smaller positions in new start-ups and potential disruptors.
10-Mar-2019: Soul Patts (SOL) is about to enter the S&P/ASX100 Index, on Monday March 18 (in a week's time). It replaces IOOF (ASX: IFL) - which is being removed. See here.
I remember a couple of years ago lamenting online that SOL weren't even in the ASX300 and so I couldn't include them in my SMSF - which only allows ASX300 companies (and above) as allowable direct investments. It was thought at the time that SOL wasn't included because of their reduced free-float (and reduced liquidity) due to the Milner Family (Rob & son Tom) owning a reasonable chunk of the company, plus Brickworks (BKW) owning another 42.72%. The cross-shareholdings between SOL & BKW (SOL also own 43.94% of BKW) also made both companies a little less attractive to some investors as there is really zero chance of either company being taken over by anyone other than each other, unless both companies were taken over at the same time by a larger company - with the Milners' blessing, or the Millners consented to the unwinding of the cross-shareholding arrangement. That seems highly unlikely. Many have tried to legally force the break-up of the two companies - and all have failed.
The main complaint is that the Milners have complete control over both companies despite owning less than 20%.
Nothing much has changed, except perhaps that SOL and BKW are both more popular with investors now, so the liquidity has improved. Perhaps the rationale behind the index inclusions has also shifted a little, as in a couple of short years SOL has now been included in the ASX300, ASX200 and now the ASX100. This can only be good for existing SOL shareholders, as it raises the profile of the company even further, and forces inclusion in certain ETFs, as well as many more fund managers now being able to consider SOL as potential investments.
While I prefer to buy SOL at lower levels (like below $20 where they were a year ago), not when their share price has gone ballistic, like above $30 where they are now, I have long considered SOL to be a very good long term investment, so perfect for SMSFs. SOL has not missed paying a dividend since listing in 1903 and is one of only two companies in the All Ords Index to have increased its regular dividend every year for the last 18 years. See here. There are also special dividends in there that make some years look better than others, but their regular dividend has increased every year. The other one is RHC - Ramsay Health Care - see here.
17-Aug-19: Just thought I'd update my views on SOL here. In another straw I did mention that SOL had an investment in TPI Enterprises (ASX: TPE). TPI have changed their name now to Palla Pharma (ASX: PAL), and SOL own 19.95% of PAL. It appears that PAL are still using the old TPI Enterprises website however. Thorney Opportunities (ASX: TOP, through TIGA Trading: Thorney Investment Group Australia Trading) also own another 17% of PAL and Wentworth Williamson Management own another 7.15% of PAL. I own shares in PAL as well as SOL. SOL is a cornerstone investment in my SMSF. PAL is a smaller more speculative investment, but I believe Palla Pharma has some sustainable competitive advantages and they will only get bigger and better from here. You can look them up here on Strawman.com - and they're also on my Strawman.com scorecard. They have some heavy hitters backing them in SOL, WWM & Thorney. Apart from owning almost 20% of PAL, SOL have also provides PAL with a finance facility. In their FY2018 Annual Report released in March (PAL's FY finishes in December), PAL said, "On 7th March 2019 the Group increased the limit of its standby debt facility with Washington H. Soul Pattinson and Company Ltd from $25,000,000 to $31,000,000."
SOL also own 12.98% of Quickstep (QHL) through Brickworks (BKW). Due to their cross-shareholdings in each other, BKW is considered to be a subsidiary of SOL, so all substantial shareholder notices that are lodged by BKW always have an identical one lodged by SOL, although the holding is the same (they haven't doubled up - it's not two different investments, always just the one). Quickstep specialise in advanced carbon fibre products and processes. They are a leading composite component manufacturer, with clients across the defence, commercial aerospace, motor vehicle and advanced industry sectors. For example, Quickstep supplies Lockheed Martin with composite wing flaps for the C-130J Super Hercules military transporter and LM-100 commercial aircraft. They also provide parts for Lockheed Martin’s global F-35 Joint Strike Fighter (JSF) program. Quickstep is also a key supplier to Northrop Grumman (providing 21 fuselage components – including doors, panels and skins - for the F-35 JSF) and Quickstep also supply Marand with vertical tail parts, including skins, spars and fairings. The final tail assembly is exported to BAE Systems for the F-35 JSF aircraft. They have received a lot of interest from high-end sports car manufacturers also who need very strong yet very lightweight panels for their cars. Other current clients of QHL's include Lockelec Innovation, Micro-X (ASX: MX1), Chemring Australia and Boeing.
Investments by SOL in companies like Palla Pharma and Quickstep Holdings (PAL & QHL) are examples of the wide-ranging investments that SOL do make - in both listed and unlisted companies (although those two are both listed) - and they don't appear on SOL's website or even in their annual reports most years. The point being that there is more to Washington H Soul Pattinson than most people realise. Holding SOL is like holding shares in a LIC (listed investment company). You get exposure to large companies like NHC, TPG (TPM), API & BKW, but also to smaller companies like Clover Corporation (CLV), Palla Pharma (PAL) and Quickstep (QHL), as well as some property investments and some unlisted companies. SOL also have an interest in Milton Corporation (MLT), a LIC which listed SOL as their 3rd largest holding at July 31st (SOL was 6.2% of MLT's portfolio). MLT also list BKW in their top 20 holdings. SOL were listed in MLT's latest AR (annual report) as being their 2nd largest shareholder, owning 3.32% of MLT. Additionally, at least three of the other top 20 shareholders of MLT are companies associated with Rob Millner - being Millane Pty Ltd, J S Millner Holdings Pty Ltd, and Hexham Holdings Pty Ltd. When you add Rob Millner's direct holdings in MLT to the holdings of the other 10 companies or trusts that he controls that also all own shares in MLT, Rob controls over 13 million MLT shares - around 1.94% of MLT. That's in addition to the 3.32% of MLT that SOL owns. Rob Millner is a director of both SOL & MLT and the Chairman of both companies' boards. The Millner family controls SOL and BKW, and I imagine they have some serious influence over what MLT invests in, hence SOL and BKW both being in MLT's top 20 list.
Incidentally, MLT's top 20 holders list also has Argo Investments (ARG) at #4 and the Australian Foundation Investment Company (AFI) at #5, so while SOL and BKW may not feature directly in the top 20 holdings lists of Australia's largest two LICs (AFI & ARG), they both have indirect exposure to BKW and especially SOL through their MLT holdings (MLT being Australia's 3rd largest LIC).
Disclosure: Of the companies mentioned in this straw, I hold shares in SOL and PAL. However, by owning SOL shares I have indirect exposure to a LOT of other companies.
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