Originally a chain of chemists, Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) is now a diversified investment company with a long-term value-oriented style. The company has been listed since 1903 and has never failed to pay a dividend.
Chairman Robert Millner and director Thomas Millner are the fourth and fifth generation of a family that has controlled Soul Patts since its inception. They own 8.3% and 7.8% of the company respectively.
Robert has been a board member since 1984 and so has overseen the success of the company over recent decades. In contrast, the rest of the board is relatively new with an average tenure of seven years.
The company has achieved 12% annualised total shareholder return over the last 15 years versus 9.6% for the All Ordinaries Accumulation Index. This may not sound like much of an outperformance but is the difference between a 448% and a 295% cumulative return over the period.
Over 40 years, the company has generated an astounding 16.4% compound return and so $1,000 invested in 1978 would be worth $432,228 today. Meanwhile, dividends have steadily increased from 10 cents per share in 1998 to 55 cents last year representing a yield of 2.7% at current prices.
Here are some of Soul Patts' largest listed investments.
TPG Telecom Ltd (ASX: TPM) – 25.2% shareholding valued at $1.3 billion
In 2008 SP Telemedia which was 46.3% owned by Soul Patts at the time merged with TPG. The combined entity had an enterprise value of $230 million based on a share price of 35 cents. Today TPG's share price is $5.59.
New Hope Corporation Limited (ASX: NHC) – 50% shareholding valued at $1.1 billion
The coal miner has operated since 1952 and Soul Patts has been a major shareholder since 1970, although it recently sold 80 million share or 10% of the company.
Brickworks Limited (ASX: BKW) – 43.9% shareholding valued at $1.1 billion
The diversified building products company was founded in 1934 at the height of the Great Depression. In 1969 Soul Patts and Brickworks entered into a cross holding agreement which remains in place to this day with Brickworks holding a 43% interest in Soul Patts.
Australian Pharmaceutical Industries Ltd (ASX: API) 19.3% shareholding valued at $127.4 million
API has a 108 year operating history and Soul Patts became a shareholder when API acquired Soul Pattinson chemists in 2000.
TPI Enterprises Ltd (ASX: TPE) 19.3% shareholding valued at $22.6 million
The poppy processing company was founded in 2004 and Soul Patts has been a shareholder since before it listed in 2015.
Soul Patts also owns various other listed and unlisted companies including financial services firms collectively valued at $439 million at the end of January 2018 as well as a property portfolio worth $211 million.
The company had a net asset value of $5.2 billion before tax at 31 January 2018 and if the portfolio had been sold then the tax bill would have been $1 billion. This compares to Soul Patts' market capitalisation of $4.9 billion.
If the future looks anything like the past then Soul Patts will continue to richly reward its shareholders. Long-term investing is challenging because it requires years of inactivity but the Millners and their predecessors are masters.
Soul Patts has held two of its three largest holdings for almost 50 years, longer than most people's careers! Such patience goes a long way to explaining the success of this unique company.
