Hoard your powder and keep it dry. That’s the key message from billionaire Robert Millner, Chairman of Washington H Soul Pattinson (WHSP), for investors in response to COVID-19.
“If I can give a little bit of advice: I think everybody should keep as much cash as you have. Be patient and keep well.”
Millner kindly responded to questions from Livewire Markets following WHSP’s 1H20 results, in which the diversified conglomerate declared a 4.2% boost to its interim dividend, marking the 22nd consecutive annual increase to shareholder payouts.
Caption: Robert Millner, Chairman, WHSP
Since 1984, Millner has steered WHSP through multiple shocks including the 1987 crash, 1991 recession, the dot-com bubble, the global financial crisis and eurozone debt crisis (to name a few).
He said financial markets are in uncharted waters not only due to the virus but also zero-interest rates globally, noting that “no-one who’s alive at the moment has been in an environment with interest rates as low as they are.”
“What concerns me is the financial impact this is going to have particularly on our workforce and people’s livelihoods. I don’t know if enough thought has been given to the consequences of what could happen,” he said prior to the government’s announcement of a $130 billion wage subsidy package.
Regardless, Millner was worried about the explosion in consumer, corporate and government debt that would accumulate due to the situation and the subsequent knock-on effects.
“How do we repay all the massive amount of debt that’s going to build up? A lot of companies, a lot of governments have had far too much debt before this situation has arrived. To me that’s a great concern.”
The bulk of WHSP’s portfolio was positioned defensively, with its core investments in telecommunications (via TPG), pharmacies (through the Soul Patts chain) and long-lease industrial properties (through Brickworks) weathering the storm and seeing business boom. Further, thermal coal prices and demand have been resilient, supporting its investment in New Hope.
As such, he was confident that cash generation would support the company’s ability to pay growing dividends.
“We'll always outperform in periods like this and we’ve got very good people running these businesses. These businesses are not stretched with debt.”
While Millner was pleased that the Federal Court ruled that the TPG and Vodafone merger should not be blocked on competition grounds, he expressed frustration at the number of roadblocks that merger deals have to undergo before all the boxes are ticked. He pointed out that Foreign Investment Review Board approval would likely add around two more months to the process.
“This is one of the biggest problems we’re all facing in Australia. The delay and the inaction of bureaucrats and governments to get on and get business rolling.”
Ready to pounce
Millner said that while asset valuations were racing away in 2019, largely unsupported by growth in company earnings, WHSP remained cautious, and has positioned itself to have the financial capacity to make new investments during a market correction.
He wouldn’t say if any particular sector of the market had piqued his interest, but mentioned the desire for “cash-generating businesses run by good people”.
In October 2019, WHSP formed a partnership with Provectus Care, an aged care and retirement living operator, to build and operate luxury independent living accommodation for retirees. The company has committed to fully fund the acquisition of its first site in NSW for $39 million.
“We’re very bullish on this market, particularly at the top end - there’s a drastic shortage of very good facilities. I think this is an area where we can go leaps and bounds and we’re very confident.”
In 2H19, the company also spent $100 million acquiring a portfolio of land and water-based agricultural assets across Australia. The portfolio produces a range of commodities including citrus, macadamias and cotton and is part of Millner’s view on Australia’s as a food source for the world.
But one area WHSP won’t consider is investing in renewables.
“We’ve got our plate full of our coal mining investments. We’re very confident of that going forward. As we speak today we’re still building coal fired power stations around the world, so we’re very confident in the future of Australian thermal coal.”
Listen to our podcast with Millner
Millner has been one of the most popular and cited guests in our The Rules of Investing podcast, hosted by my colleague Patrick Poke.
Listen to the interview for more insights on Millner's philosophy, the best way to find value, the virtue of patience and WHSP's history.
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Thanks Vishal. Valuable insights from a legend. I'm glad I'm not the only one who wonders "how are we going to repay the massive amounts of debt built up....?"
Awesome article Vishal
Exactly, insanity, can’t wait to see the reaction when the reality of paying this off dawns on people
I have limited respect for someone with that much faith in coal. Not to mention the moral quandary involved. Us Gen Y are social distancing, likely for many months, to protect people like Millner. Why can’t they make sacrifices and invest and lobby for better climate policy?
I wish the authorities took even longer to look at mergers and acquisitions, and approve far fewer of them. What everybody forgets is that everytime a merger is approved it is the consumer that pays the cost through higher prices. The classic example is Wesfarmers (Bunnings) being allowed to take over Howard Smith (Hardware house, BBC hardware). Wesfarmers then proceeded to slowly destroy the rest of the hardware industry with the ultimate result being we consumers are paying monopolistic prices for hardware. Yes it took time to destroy the smaller hardware stores, but that was the ultimate aim.
Coal sucks ! The world needs to abandon coal . He is not thinking of the environmental catastrophe that could occur in the future if we don't abandon coal. It could make COVID look like a walk in the park. Get your head out of the sand Mr Millner.
Thank you for the insight. I cant help but notice his words don't align with his actions though... surely holding 1.8% cash is far from hoarding! seems like WHSP is all in.
Thanks Vishal, one of the previous articles mentioned currency crisis and this is a real concern following on from the pandemic. Debt is going to cause major headaches for many businesses. Make sure to invest in those companies that aren't carrying to much debt and I agree don't toss all your money back into stocks right now. Hold some of that money back or sit it in gold. There'll be plenty of more opportunities and time to buy back in. Be patient!
Very disappointing to see his support for coal over renewables.
Good timing to have this
I attended the last SOL AGM in Sydney. A highly entertaining event with the curmudgeonly Millner clashing with a conga line of proxy holding greenies - Prompting Millner to remark "Don't you people ever buy shares !". Unfortunately, Millner cut the meeting short after he had enough.
Thanks for your feedback all - the focus is certainly sharpening on how/who is going to pay for all this fiscal stimulus and the debt being built up during lockdowns. According to AMP, COVID-19 spending will be nearly 4% of the G20's GDP. In comparison, it was ~2.5% in the GFC! We'll look to get more insights from contributors on the implications here.
Great article. I invest to make money on my investment, and I agree with the management of SOL.
What is the relevance of a table showing WHSP's holding movements for six months up to the end of JANUARY? Why not look at BKI under the stewardship of the same Robert Millner, both portfolio performance and total shareholder return underperforming its benchmark over 1, 3, 5, 10 and 15 years.
Still investing in coal. Sigh!! Not investing in renewables gives me a very good reason to abandon WHSP.
Robert, Ryan, Carlos and Keiran - Japan doesn't seem to have the same quandry about keeping the lights on via the new post-Fukishima coal-fired power stations they are busily building. And given the coal investments are a small part of his overall portfolio (14%), you may want to look elsewhere to express your concerns. Suffice to say, a good article by Vishal.
Hi Graeme, that table was selected primarily to show readers where WHSP's money is sitting.
Thanks Vishal. It’d be great to get an update from Robert or Tim Millner on BKI, which took over the investment portfolio for Brickworks.
What a breath of fresh air it is to listen to a man with so much accumulated wisdom and common sense. I couldn’t agree more with him vis-a-vis the value of coal as an energy source. For successive Governments to be pursuing expensive, low-energy renewables when we are blessed with an abundance of coal and natural gas is economic madness. We could have the cheapest electricity in the world but our silly anti-carbon policies has instead given us some of the most expensive electricity. Wake up, Australia. Good on you, Mr Millner.
Hi John, thanks for your note. Will see what we can do! Cheers,