Forget the TV drama, Stokes shows Seven’s industrial might

While billionaire Kerry Stokes’ Seven West Media remains both financially troubled and scandal-ridden, son Ryan is quietly sending the family’s multibillion-dollar fortunes soaring at its $16 billion parent: the far-more lucrative industrial giant Seven Group Holdings.

Last week, Seven Group reported a revenue jump of 10 per cent to $10.6 billion, while net profit soared 30 per cent to $850 million. It triggered upgrades across the board from analysts covering the stock.

Seven Group is controlled by Ryan Stokes (pictured) and his billionaire father, Kerry.Credit: Nick Moir

The Stokes family’s public humiliation from ongoing media revelations hides an important point: the media business accounts for only a fraction of the family’s wealth.

Seven Group’s stake in Seven West is worth just $90 million. And while the media group’s fortunes have plunged over the past two years, the family’s 51 per cent share of Seven Group has more than doubled in value to more than $8 billion over the same period.

Seven West’s new boss, Jeff Howard, received a baptism of fire as the media company announced its results on the same day as Seven Group. The media business’s main news was another brutal round of cost-cutting to offset the continuing decline in advertising revenue, which pushed net profit down to $45 million for the year to June 30.

And Howard was not the only one forced to address the issues that put it in the news again last week: ABC’s Four Corners detailing further allegations of bullying, harassment and misogynistic treatment of female staff.

Ryan Stokes, chief executive at Seven Group, also addressed the issue and promised zero tolerance for any further misbehaviour at the media business, which is quickly becoming little more than a rounding error on Seven Group’s books.

“The team is very focused on building a stronger culture, a safe culture, a performance-orientated culture that will enable our people to thrive, and where that unacceptable behaviour is not tolerated,” he said.

The good news for Seven Group is that the torrid headlines on the media business are not denting the conglomerate’s overall numbers. Its recent acquisition of building products group Boral, and the continued momentum in its Caterpillar machinery business, helped the conglomerate record a 28 per cent jump in full-year earnings. Meanwhile, a $500 million investment in spare parts and machinery for the current financial year offers an indication of Westrac’s expectations for 2025.

“The big three of Seven Group – Westrac, Coates Hire and Boral – which we see as the beating heart of the Australian mining, infrastructure and building industries just keeps on keeping on,” Anthony Golowenko, portfolio manager at MLC Asset Management, said.

Mining volumes, not commodity prices, are driving Westrac results for Seven. Credit: Erin Jonasson

“In the case of Westrac, the recurring revenues from product support [maintenance] and steady growth in parts demonstrate this resilience. Beyond key commodity prices, it’s ultimately volumes which underpin the revenues of the Westrac business.”

Stokes also highlighted the turnaround of the Boral business under chief executive Vik Bansal, since Seven mopped up minority shareholders in July last year, with profit margins in the mid-teens now being seen as achievable.

“It’s been a fantastic result and credit to the team. I think Vik and his team have driven a huge amount of change and performance in a short period of time,” Stokes said.

And he makes the point that Seven Group is not just reliant on top-line growth to drive strong profit margins, it has also been adept at driving efficiencies within these businesses.

“The other key point I would emphasise is that the work done to drive operating leverage to each of our businesses has delivered margin expansion, and that has come just through operational efficiencies and just a concerted effort to drive that, particularly in Boral and Coates,” he said.

Stokes also said inflation pressures appeared to be moderating, which would be good news for markets nervous about the RBA focus on stubbornly high inflation levels.

“The pressure is abating,” he said.

Stokes also said Seven Group’s efficiency gains meant its workforce was also not increasing across the board. Along with cost-cutting at other companies, it could indicate labour market weakness ahead.

It also feeds through to the fact that the group does not command the same pricing power that it did as inflation surged after the COVID-19 pandemic.

“We’re not in the same environment we were 18 months, two years, ago where there was strong pricing power … our view is ensuring that we can cover our own inflation dynamic with pricing and continue to push that in a disciplined way,” he told analysts and investors on a conference call last week.

With Seven Group’s share price still below $40, analysts are expecting significant upside with price targets above its previous record high of $42.28.

“We think Seven Group remains well-placed to grow, anchored by a healthy Westrac outlook and a continued Boral turnaround,” Macquarie analysts said in a report that lifted its valuation of the stock to $43.90.

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