BUY HOLD SELL – Washington Soul Pattinson (ASX: SOL)
Washington Soul Pattinson (ASX: SOL) is an investment company which listed on the ASX in 1903. It boasts an impressive and unmatched dividend record, never failing to pay a dividend to shareholders in its 117 years since listing. How’s that for consistency? Its major interests are in TPG, BKW and NHC. The stock caught my eye after scanning through Chris’ trading section with the company printing a 3MA buy signal (check out Chris' webinar on 3MA signals HERE). Essentially confirming a technical sequence that suggests upside in the share price. Speaking of upside, SOL has had plenty of that recently, running convincingly into results that were announced yesterday morning. I have added the results write up below for those interested. Full-year reported NPAT $953m vs year-ago $247.9m. The increase in statutory profit was largely due to an accounting gain of $1.05bn (lower than anticipated in July), relating to TPG Telecom following the completion of the TPG/Vodafone merger, partly offset by New Hope Corporation (ASX: NHC) impairments and restructuring expenses incurred in its Queensland mining operations. Group regular profit fell 45% to $169.8m, although SOL doesn’t consider its earnings to be the key indicator of performance. Pointing to growth in the capital value of its portfolio and growing dividends as its preferred metrics. It declared a fully franked final dividend of 35 bringing total dividends for FY20 to 60c, up 3.4% vs year ago. FY20 Net assets outperformed the All Ordinaries Index by 6.9%. Results pleased the market which, considering the impressive run into the release, had the potential to miss high expectations. Dividend growth in a challenging year one of the highlights, a 49% lift in net cash flows facilitating the pay-out. Main observations:
- ROE isn’t anything special at 6.3%. Forecast to improve in FY2 then drop slightly in FY3.
- Revenue and EPS growth are both expected to firm this year and in FY2. Earnings are anticipated to outpace revenue until FY3.
- A PE of 27.2x is not what you’d call cheap, likely to fall to 22.6x in FY2.
- The dividend is what SOL prides itself on, over the last 20 years, dividends have grown at a compound annual growth rate of 9.2%. Making it the only company in the All Ords to have increased its dividend every year since 2000. Brokers are expecting FY21 to buck the trend – but what would they know?
- Only two brokers following the stock, one says HOLD, the other says BUY.
- It is trading at a 5.2% premium to the average broker target price and a 23.1% discount to intrinsic value.