Today we purchased an initial holding in Seven Group Holdings Limited (SVW).
SWW is a diversified operating and an Investment Company focused on three growth areas: mining production, infrastructure investments, and domestic energy demand. Growth will be driven by a recovery in mining spending benefitting WesTrac which owns the Australian Caterpillar franchise and the east coast infrastructure boom via domestic equipment hire group Coates Hire. Their 28% investments in the energy sector via Beach Petroleum (BPT) has been well-timed while they also offer some turnaround potential in old media via their 41% interest in Seven West Media (SWM) that are focused on streamlining the business to build on their winning TV ratings position via non-core assets sales, mergers and cost-cutting to pay down debt.
In recent months, central bank stimulus and better than feared outcomes for US-China trade and Brexit in the UK have improved sentiment lending support for macro-driven stocks like SVW. We see a shift from monetary to fiscal policy in FY20 as governments accelerate infrastructure spending to support economic growth and such a move will benefit Coates and mining service companies like WesTrac that are linked to the commodity price cycle. It’s also expected that China will ramp up stimulus measures to address the growth that has slowed to 27-year lows. SVW looks well poised to benefit from such moves and the balance sheet is in good shape with ~$1bn of headroom to fund acquisitions and capital management. On the merger and acquisition from their recent track record is strong having effectively doubled its investment in Beach to $1.3bn over just a 2-year holding period. The company has cited further opportunities to grow the business and we may hear more on that front at the AGM scheduled for late November.
Trading on an inexpensive 12.5x FY20 earnings while yielding a respectable 2.5% fully franked, we see value in the stock that’s also supported by some bullish valuations.