ADVISOR WATCHLIST
Mike Baker
Advisor – Sunshine Coast mbaker @ burrell . com . au ( 07 ) 5353 5224
Seven Group Holdings ( Code : SVW ) is a diversified investment company ( also known as a ‘ conglomerate ’), majority owned by the Stokes family and run by Ryan Stokes . Seven Group owns or has major stakes in a variety of businesses , providing investors with a broad and diversified exposure to the Australian economy . The group owns businesses like WesTrac , the authorized Caterpillar dealer in Western Australia , New South Wales and the A . C . T , providing product sales and support to large mining and resource companies . The mining services industry has been quite volatile over the past decade however WesTrac has been able to consistently generate returns on invested capital well above 10 % throughout this period . This has been in large part thanks to the product support segment of the business . So whilst new sales might be volatile , management have indicated the earnings of WesTrac have shifted towards product support which helps to smooth out the earnings profile . Given where we are currently in the cycle and the recent strength in all commodity prices , I expect WesTrac to deliver strong earnings growth over the next few years . Another business wholly owned by Seven Group is Coates Hire , Australia ’ s largest general equipment hire company . Coates is mainly exposed to the East Coast infrastructure market and provides a wide range of general and specialist equipment . Since FY15 , Coates has grown EBIT at around 12 % p . a . on flat revenues , delivering meaningful growth in EBIT margins ( now sitting above 20 %) and management expects EBIT in FY22 to grow by high single digits . Further , given the strong outlook for infrastructure spending on the East Coast over the next five years , I would expect to see Coates enjoy reasonable operating leverage as revenues finally start to grow given management ’ s ability to control costs . Seven Group also owns stakes in listed companies including a 70 % stake in Boral , a 40 % stake in Seven West Media and a 30 % stake in Beach Energy . Currently trading on approximately 13x FY22 earnings , Seven Group trades at a discount to the broader market and as such is a LONG TERM BUY . As a general rule , founder led businesses tend to outperform the broader index and Seven Group has been no exception . I expect this to continue over the long term .
Switch from Telstra ( Code : TLS ) to TPG ( Code : TPG ). Where do I start with Telstra ? To say it has been a disappointment to investors would be an understatement . The stock currently trades for the same price I bought some for my Mother back in 1997 when I didn ’ t have grey hair and listened to CD ’ s . The only thing that has changed with the business has been their revolving door of extremely well paid CEO ’ s and the dividend which is now lower than it was at the turn of the century . Over the past 20 years we have witnessed an explosion in new technologies , data consumption and disruption across many industries and Telstra has seemingly missed it all . I would need more than the pages allowed here to expand on all the shortcomings of this business and the lost opportunities so I will be brief . According to some in the media , the outgoing CEO has done a tremendous job . As a protector of clients ’ hard earned savings I would disagree . Under his stewardship the share price has gone from around $ 6 per share ( May 2015 ) to around $ 4 per share today , a 33 % drop . The business now has yet another new CEO to lead the business forward for the next short period and I have to say I don ’ t expect much to change as the new CEO comes from the existing senior management team . As a small token to shareholders , I think it would be a good start if the new CEO actually spent a meaningful amount of her $ 2.39m annual salary buying shares on market . Have some skin in the game please . Until this changes and earnings in the business actually grows consistently ( remember organic earnings growth drive share prices ), I will not be recommending my clients ’ buy Telstra . If you are a shareholder , I recommend switching to TPG .
TPG has struggled throughout the pandemic as closed borders impacted their roaming revenue and new subscriber acquisition . They also had delays in upgrading their mobile network and rolling out 5G as the business was forced to switch network suppliers . This is all well understood by the market and priced into the shares which have underperformed its ’ listed peer
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