Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), is one of the few conglomerate style businesses on the ASX, formed just two years after Australia became a nation in 1903. Over the decades, it has taken large or controlling stakes in a range of listed and unlisted companies. Typically holding for the long term, it has owned dozens of profitable investments over the years.
And the investing record of the managers and analysts who are employed by Soul Patts is impressive, with 10.3% annualised returns over five years, and over 11% over 10 years. This might not sound headline grabbing, but an investment that returns just over 10% every year will double every seven years, and few investors would complain about that.
So what drives returns of 10% year after year like clockwork? Well, taking a look at the stakes in the companies that Soul Patts owns is one way to find out.
TPG Telecom Ltd (ASX: TPM) has been all over the financial news lately due to its aggressive growth by acquisition strategy that has seen it become one of the largest telcos in the country.
But it might surprise you to learn that Soul Patts owns a 26.9% stake in this fast-growing growth business. Even better, it acquired its stake well below the current prices, meaning that the dividend payments alone are probably covering the initial cost of capital.
New Hope Corporation Limited (ASX: NHC) is another company that has been in the news in recent months, for less positive reasons. The prolonged slump in coal prices globally has impacted the profitability of all coal miners, including New Hope.
As the controller of 59.7% of New Hope, Soul Patts' returns are also obviously affected. But the company has the ability to hold stocks through the investment cycle, and that is one of the reasons it has performed so well over decades. New Hope still pays a strong dividend, and is well placed on the low end of the cost curve.
As the population ages, demand for healthcare and pharmaceuticals grows. Through the ownership of 24.6% of Australian Pharmaceutical Industries Ltd (ASX: API), Soul Patts is leveraged to this long term secular trend. The company operates pharmacy brands with a national footprint, including the Priceline, Soul Pattinson and Pharmacist Advice brands.
Another major trend that will dominate the coming decades is the increased viability of export markets for high-quality Australian produce. To gain exposure to this trend, Soul Patts has a 20.6% investment in Ruralco Holdings Limited (ASX: RHL).
Ruralco provides service expertise in real estate, risk management, finance, insurance, fertiliser and merchandise to the agribusiness sector at large through more than 40 specialist businesses. This is a little like supplying "shovels to the miners" in that Ruralco helps grow its clients' businesses.
Of course, you could circumvent the process of looking at each of these companies in detail by simply buying a stake in Soul Patts itself. That would give you exposure to the stocks above, as well as listed and unlisted businesses including Ampcontrol, Cromford Group, Pitt Capital Partners, Clover Corporation Limited, CopperChem Limited and many others.
Soul Pattinson did not survive for over a century by chance, and buying shares in this long-term investor in Australian businesses with a proven track record looks like a good way to build a strong foundation for your portfolio.
